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You could be filing a faulty tax return; here's how to avoid getting it rejected
, ET Bureau|
17 Aug, 2015, 10.21AM IST
He hasn't got money stashed away in foreign banks, doesn't buy benami properties and diligently files his tax return before the last date. Yet, Kiran Chandorkar could get a tax notice because he doesn't declare the interest from fixed deposits and tax saving infrastructure bonds in his return.
"The interest from FDs is tax-free because it is less than Rs 10,000 a year and the infrastructure bonds are tax saving instruments," explains the Bengaluru-based IT professional. Chandorkar is not alone. An online survey conducted by economictimes.com last week indicates an abysmal level of tax literacy. The tax returns of 66% of the 2,158 respondents could get rejected because of faulty information.
Almost 34% could even get a scrutiny notice because of grave errors in their tax forms. Like Chandorkar, almost 30% of the respondents believe that interest of up to Rs 10,000 from bank FDs is tax free in a year. They should know that the exemption under Section 80TTA is only for the interest on their savings bank accounts. What they earn on fixed deposits and recurring deposits is fully taxable.
Similarly, almost 30% believe that the interest earned on the tax-saving infrastructure bonds bought a few years ago under Section 80CCF is not taxable because they were tax saving instruments. Wrong again. The bonds may have helped them save tax, but the interest is fully taxable and has to be reported. Nearly 45% of the 637 respondents who said so earn over Rs 12 lakh a year and should be paying 30% on the income they think is tax free.
"These are very common misconceptions. Our research shows that nine out of 10 taxpayers go wrong in reporting their interest income," says Sudhir Kaushik, Co-founder and CFO of Taxspanner.com. There is also a misconception that there is no need to report the income if the bank has deducted TDS. But TDS is only 10%, and if your income puts you in the 20% or 30% tax bracket, you have to pay additional tax. Of course, if the income is below the basic exemption limit, the TDS will be refunded when the investor files his return.
To be sure, not reporting a small amount of interest income or claiming a deduction incorrectly rank very low in the hierarchy of tax offences. At most you will get a notice with an additional tax demand. There may even be a penalty under Section 271 (c) for concealment, but it depends on how the assessing officer views the transgression. "If the assessing officer is convinced that it was a genuine mistake and the taxpayer's intent was not to evade tax, he might not levy a penalty," says Divya Baweja, Partner with Deloitte, Haskins & Sells.
Fool's paradise
On the other hand, if the intention is clearly to conceal the income, the taxpayer can be in hot water. From this year, the tax forms have a separate column for declaration of property. If you have more than one property, you have to mention it in the return. If it has been rented out, the rental income will have to be declared in the return and tax paid on it. Even if the property is lying vacant, the owner has to pay tax on the notional rent from the property. This notional rent is the prevailing market rate in that location. "This rule about the tax on notional rent was always there. It is only that this year's tax forms have made it clear by providing a separate column for such property," says Vineet Agarwal, Partner in KPMG India.
If you don't declare the second property, it amounts to concealment of income and could attract a severe penalty. "Such a taxpayer will be seen as a wilful defaulter and could get slapped with a penalty," says Kaushik. Shockingly, nearly 20% of the survey respondents fall in this category. They believe that there is no tax implication of a house lying vacant. One out of three such taxpayers are in the highest 30% tax bracket.
Keep in mind that even if you are able to avoid mentioning the property in your tax return, it will ultimately get noticed by the taxman. TDS is now applicable on property transactions above Rs 50 lakh. If and when you sell the property and claim indexation benefit on long-term gains or seek a refund of the TDS, the tax department might want to know why the property was not declared in the tax return of the owner from the time it was purchased.
Declaration of foreign assets
This is one area where taxpayers need to really be very careful this year. Uncovering black money is high on the government's agenda, and any slippage on reporting of foreign assets immediately puts you in the dock. "The logic used by the tax department is that anyone with foreign assets has high income and should not be spared if he has concealed income," says Komal Agarwal, Partner in Mahesh K. Agarwal & Company. Thankfully, almost 89% of the respondents got this right.
But that still leaves around 11% of taxpayers who might falter when it comes to declaring their foreign assets. The department is keeping a close eye on the accounts and assets held outside India. The new ITR-2 requires you to give details of your foreign bank account's holding status (both as an owner and as a beneficiary), account opening date, interest accrued during the year and schedule and fields number under which the same income is reported.
Not only foreign bank accounts, but even domestic bank accounts need to be reported in the new forms. "A taxpayer has to report all his bank accounts in the return. If you miss any, it amounts to concealment of information," says Preeti Khurana, Chief Content Editor, ClearTax.in.
TDS gives you away
For many taxpayers, TDS is a four-letter word. More than 15% respondents said they would spread their investments across bank branches to avoid TDS. This might help them avoid TDS, but it's a ticking time bomb. Till now, TDS kicked in only if the income from FDs made in a particular bank branch exceeded the threshold of Rs 10,000 in a financial year.
But this year's budget has changed the rules and TDS will now apply if the combined income from FDs in all branches of a bank exceeds the threshold. Another significant change is that TDS will apply to recurring deposits if the interest during a financial year exceeds Rs 10,000. "The tax department is increasingly connecting the dots. An individual's financial life can no longer remain hidden," says Vikram Ramchand, Co-founder of makemyreturns.com.
TDS is a dead giveaway because it shows up in the taxpayer's Form 26AS. If the income and the TDS is mentioned in the Form 26AS but you haven't reported it in the tax return, the mismatch will be picked up by the computerised scrutiny system in the tax department and a notice will be issued. How lenient an assessing officer will be in such a case is anybody's guess.
Clubbing of income
Another way taxpayers are falling through the cracks is clubbing of income. Tax rules say that if you invest on behalf of your spouse or minor child, the income from the investment will be treated as yours. But more than 30% of the respondents believe that there is no tax implication if they invest in a recurring deposit in their wife's name or open a fixed deposit in the name of a minor child. This could prove to be a problem if the amount invested in the name of the spouse is significantly large and not commensurate with her known sources of income. Of the 668 respondents who believe this, more than 30% are in the highest tax bracket. Another 50% earn more than Rs 5 lakh a year, which puts them in the 20% tax bracket.
A small minority of taxpayers is also going wrong about whether they have to file their returns at all. But a significant 45% is mistaken whether they have to take the online route or not. Online filing is compulsory if your income is above Rs 5 lakh, you have foreign assets, or are claiming a refund. "Even if a physical return is accepted in the last-minute rush, it will ultimately get rejected," says Kaushik of Taxspanner.com
Missing out on deductions
Not all of the mistakes that taxpayers make raise the hackles of the taxman. Some also cost the taxpayer. More than 40% of the respondents did not know that along with the interest on a home loan for a self-occupied house, even the processing fees for the loan is also eligible for deduction under Section 24.
Another 15% was blissfully unaware that the fees paid for a preventive health checkup of the taxpayer and his family is eligible for deduction under Section 80D. A small but significant 7% were not aware that tuition fees of up to two children can be claimed as a deduction under Section 80C.
"The interest from FDs is tax-free because it is less than Rs 10,000 a year and the infrastructure bonds are tax saving instruments," explains the Bengaluru-based IT professional. Chandorkar is not alone. An online survey conducted by economictimes.com last week indicates an abysmal level of tax literacy. The tax returns of 66% of the 2,158 respondents could get rejected because of faulty information.
Almost 34% could even get a scrutiny notice because of grave errors in their tax forms. Like Chandorkar, almost 30% of the respondents believe that interest of up to Rs 10,000 from bank FDs is tax free in a year. They should know that the exemption under Section 80TTA is only for the interest on their savings bank accounts. What they earn on fixed deposits and recurring deposits is fully taxable.
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Similarly, almost 30% believe that the interest earned on the tax-saving infrastructure bonds bought a few years ago under Section 80CCF is not taxable because they were tax saving instruments. Wrong again. The bonds may have helped them save tax, but the interest is fully taxable and has to be reported. Nearly 45% of the 637 respondents who said so earn over Rs 12 lakh a year and should be paying 30% on the income they think is tax free.
 |
"These are very common misconceptions. Our research shows that nine out of 10 taxpayers go wrong in reporting their interest income," says Sudhir Kaushik, Co-founder and CFO of Taxspanner.com. There is also a misconception that there is no need to report the income if the bank has deducted TDS. But TDS is only 10%, and if your income puts you in the 20% or 30% tax bracket, you have to pay additional tax. Of course, if the income is below the basic exemption limit, the TDS will be refunded when the investor files his return.
To be sure, not reporting a small amount of interest income or claiming a deduction incorrectly rank very low in the hierarchy of tax offences. At most you will get a notice with an additional tax demand. There may even be a penalty under Section 271 (c) for concealment, but it depends on how the assessing officer views the transgression. "If the assessing officer is convinced that it was a genuine mistake and the taxpayer's intent was not to evade tax, he might not levy a penalty," says Divya Baweja, Partner with Deloitte, Haskins & Sells.
Fool's paradise
On the other hand, if the intention is clearly to conceal the income, the taxpayer can be in hot water. From this year, the tax forms have a separate column for declaration of property. If you have more than one property, you have to mention it in the return. If it has been rented out, the rental income will have to be declared in the return and tax paid on it. Even if the property is lying vacant, the owner has to pay tax on the notional rent from the property. This notional rent is the prevailing market rate in that location. "This rule about the tax on notional rent was always there. It is only that this year's tax forms have made it clear by providing a separate column for such property," says Vineet Agarwal, Partner in KPMG India.
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If you don't declare the second property, it amounts to concealment of income and could attract a severe penalty. "Such a taxpayer will be seen as a wilful defaulter and could get slapped with a penalty," says Kaushik. Shockingly, nearly 20% of the survey respondents fall in this category. They believe that there is no tax implication of a house lying vacant. One out of three such taxpayers are in the highest 30% tax bracket.
Keep in mind that even if you are able to avoid mentioning the property in your tax return, it will ultimately get noticed by the taxman. TDS is now applicable on property transactions above Rs 50 lakh. If and when you sell the property and claim indexation benefit on long-term gains or seek a refund of the TDS, the tax department might want to know why the property was not declared in the tax return of the owner from the time it was purchased.
Declaration of foreign assets
This is one area where taxpayers need to really be very careful this year. Uncovering black money is high on the government's agenda, and any slippage on reporting of foreign assets immediately puts you in the dock. "The logic used by the tax department is that anyone with foreign assets has high income and should not be spared if he has concealed income," says Komal Agarwal, Partner in Mahesh K. Agarwal & Company. Thankfully, almost 89% of the respondents got this right.
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Not only foreign bank accounts, but even domestic bank accounts need to be reported in the new forms. "A taxpayer has to report all his bank accounts in the return. If you miss any, it amounts to concealment of information," says Preeti Khurana, Chief Content Editor, ClearTax.in.
TDS gives you away
For many taxpayers, TDS is a four-letter word. More than 15% respondents said they would spread their investments across bank branches to avoid TDS. This might help them avoid TDS, but it's a ticking time bomb. Till now, TDS kicked in only if the income from FDs made in a particular bank branch exceeded the threshold of Rs 10,000 in a financial year.
 |
But this year's budget has changed the rules and TDS will now apply if the combined income from FDs in all branches of a bank exceeds the threshold. Another significant change is that TDS will apply to recurring deposits if the interest during a financial year exceeds Rs 10,000. "The tax department is increasingly connecting the dots. An individual's financial life can no longer remain hidden," says Vikram Ramchand, Co-founder of makemyreturns.com.
TDS is a dead giveaway because it shows up in the taxpayer's Form 26AS. If the income and the TDS is mentioned in the Form 26AS but you haven't reported it in the tax return, the mismatch will be picked up by the computerised scrutiny system in the tax department and a notice will be issued. How lenient an assessing officer will be in such a case is anybody's guess.
Clubbing of income
Another way taxpayers are falling through the cracks is clubbing of income. Tax rules say that if you invest on behalf of your spouse or minor child, the income from the investment will be treated as yours. But more than 30% of the respondents believe that there is no tax implication if they invest in a recurring deposit in their wife's name or open a fixed deposit in the name of a minor child. This could prove to be a problem if the amount invested in the name of the spouse is significantly large and not commensurate with her known sources of income. Of the 668 respondents who believe this, more than 30% are in the highest tax bracket. Another 50% earn more than Rs 5 lakh a year, which puts them in the 20% tax bracket.
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A small minority of taxpayers is also going wrong about whether they have to file their returns at all. But a significant 45% is mistaken whether they have to take the online route or not. Online filing is compulsory if your income is above Rs 5 lakh, you have foreign assets, or are claiming a refund. "Even if a physical return is accepted in the last-minute rush, it will ultimately get rejected," says Kaushik of Taxspanner.com
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Missing out on deductions
Not all of the mistakes that taxpayers make raise the hackles of the taxman. Some also cost the taxpayer. More than 40% of the respondents did not know that along with the interest on a home loan for a self-occupied house, even the processing fees for the loan is also eligible for deduction under Section 24.
Another 15% was blissfully unaware that the fees paid for a preventive health checkup of the taxpayer and his family is eligible for deduction under Section 80D. A small but significant 7% were not aware that tuition fees of up to two children can be claimed as a deduction under Section 80C.
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Hyderabad-based Madhavs need to change investing pattern to meet financial goals
, ET Bureau|
17 Aug, 2015, 08.43AM IST
Despite the Indian market outperforming its peers this year and equity outshining other asset classes, some investors are not convinced that they should opt for it. Either due to low risk appetite or ignorance, they fail to invest in equity even though they have long-term goals. Since market investments yield high returns with a longer time horizon, younger people should take advantage of it and allow their money to work harder.
However, Hyderbad-based Madhav has reposed his faith in gold and debt, with 77% of his portfolio in these two asset classes, and only 18% in equity. Since he is 35, Madhav still has time to reverse his investing pattern and meet his goals. To help him do so will be Ashish Shanker of Motilal Oswal Private Wealth Management.
Existing financial status
Madhav works as software professional and stays with his 27-year-old wife, Prashanthi, and two-year-old son, Vedh Karthik, in a rented accommodation in Hyderabad. While Prashanthi is a homemaker, Madhav brings in a monthly salary of Rs 76,000. As for their financial outgo, the couple spends Rs 22,000 as household expenses, Rs 7,500 as rent, Rs 5,000 as EMI for a Rs 3 lakh personal loan Madhav took, and Rs 5,066 as insurance premium. This brings the total expense to Rs 39,566 a month, leaving them with a surplus of Rs 36,434. This amount, along with the existing resources, will have to be utilised judiciously to maximise the returns.
Madhav's existing investments include those in equity and debt mutual funds, PPF and EPF, fixed deposit and gold. He will have to alter his investing priority if he wants to make sure he reaches his goals. The goals include building an emergency corpus, buying a car and a house, preparing for their son's education and wedding, and for their own retirement. Shanker will begin by assessing Madhav's insurance portfolio.
Insurance portfolio
Madhav has bought a term plan worth Rs 30 lakh and has another pension plan that covers him for Rs 25 lakh. However, he needs a higher cover and Shanker suggests he buy a Rs 1 crore term plan that will cost him Rs 15,000 a year. Since Prashanthi is not earning, she does not need life insurance.
As for health insurance, Madhav has been slightly more aware and has bought a critical illness plan that covers him and his wife for Rs 7.5 lakh. He is also covered by his employer, but still needs to buy a basic indemnity plan. Shanker suggests he buy a family floater plan worth Rs 5 lakh, which covers his wife and child as well. It will cost him Rs 15,000 a year. The additional premium for life and health insurance can be easily sourced from the investible surplus.
Road map for the future
After taking care of the family's insurance needs, Madhav can start planning for his goals. To begin with, he needs to have an emergency fund to deal with eventualities. Shanker has calculated that he will need Rs 2.4 lakh, which is equal to his six months' expenses. He can build this by allocating some of his existing resources, which include cash of Rs 50,000, fixed deposit worth Rs 1 lakh, gold worth Rs 77,000 and a mutual fund investment of Rs 13,000. This amount should be invested in a liquid fund.
Next, Madhav wants to save for his son's education when he is 18 years old and Shanker has estimated a need of Rs 82.7 lakh in 15 years taking into account inflation of 7%. For this goal, no existing resource has been allocated and Madhav is advised to start an SIP of Rs 15,634 in a diversified equity fund for the specified time period.
After this, Madhav wants to build a corpus for his son's wedding. For this goal, he wants to amass a sum of Rs 54.27 lakh in 25 years. Again, no existing resource has been allocated and Madhav can build it by starting an SIP of Rs 2,615 in a diversified equity The Hyderabad-based couple will need to increase the equity exposure, align investments to goals and push off early retirement to ensure they achieve all their financial milestones. fund for the given time period.
The couple also wants to prepare for their retirement by building a kitty of Rs 2.07 crore in 20 years since Madhav wants to retire at 55 years. To achieve this goal, Shanker suggests he allocate his PPF and EPF corpus of Rs 3 lakh, besides the mutual fund investment of Rs 2 lakh and the remaining gold worth Rs 4.23 lakh. These will combinedly yield Rs 1.2 crore in the specified period. For the deficit amount, Madhav will have to start an SIP of Rs 8,097 in a diversified equity fund. However, if Madhav decides to work till 60 instead of 55, he can build a bigger corpus for retirement or fulfil other goals.
Madhav is now left with a surplus of Rs 7,588 and has two goals: buying a car and a house. However, before he starts investing for these, he should try to close his personal loan of Rs 3 lakh, for which he is paying an EMI of Rs 5,000. He should use Rs 7,588 and any increase in income to raise the EMI and repay the loan in 1.5-2 years. After this, he can use the surplus amount, including a rise in income of 5%, to save for his goal of buying a car worth Rs 5 lakh in the next two years. He can do so by investing the sum in a debt fund.
As for his goal of buying a house worth Rs 25-30 lakh, he can start investing for it after four years when he has repaid the loan and bought the car. This amount, along with any bonus and hike in income, can be used to save for the house. He should, however, review the situation after four years and calculate how much he can save as down payment and how much loan he will be able to take till he retires. It is advisable that he continue to work till 60 years if he wants to achieve all his goals comfortably.
However, Hyderbad-based Madhav has reposed his faith in gold and debt, with 77% of his portfolio in these two asset classes, and only 18% in equity. Since he is 35, Madhav still has time to reverse his investing pattern and meet his goals. To help him do so will be Ashish Shanker of Motilal Oswal Private Wealth Management.
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Madhav works as software professional and stays with his 27-year-old wife, Prashanthi, and two-year-old son, Vedh Karthik, in a rented accommodation in Hyderabad. While Prashanthi is a homemaker, Madhav brings in a monthly salary of Rs 76,000. As for their financial outgo, the couple spends Rs 22,000 as household expenses, Rs 7,500 as rent, Rs 5,000 as EMI for a Rs 3 lakh personal loan Madhav took, and Rs 5,066 as insurance premium. This brings the total expense to Rs 39,566 a month, leaving them with a surplus of Rs 36,434. This amount, along with the existing resources, will have to be utilised judiciously to maximise the returns.
Madhav's existing investments include those in equity and debt mutual funds, PPF and EPF, fixed deposit and gold. He will have to alter his investing priority if he wants to make sure he reaches his goals. The goals include building an emergency corpus, buying a car and a house, preparing for their son's education and wedding, and for their own retirement. Shanker will begin by assessing Madhav's insurance portfolio.
Insurance portfolio
 |
Madhav has bought a term plan worth Rs 30 lakh and has another pension plan that covers him for Rs 25 lakh. However, he needs a higher cover and Shanker suggests he buy a Rs 1 crore term plan that will cost him Rs 15,000 a year. Since Prashanthi is not earning, she does not need life insurance.
As for health insurance, Madhav has been slightly more aware and has bought a critical illness plan that covers him and his wife for Rs 7.5 lakh. He is also covered by his employer, but still needs to buy a basic indemnity plan. Shanker suggests he buy a family floater plan worth Rs 5 lakh, which covers his wife and child as well. It will cost him Rs 15,000 a year. The additional premium for life and health insurance can be easily sourced from the investible surplus.
Road map for the future
After taking care of the family's insurance needs, Madhav can start planning for his goals. To begin with, he needs to have an emergency fund to deal with eventualities. Shanker has calculated that he will need Rs 2.4 lakh, which is equal to his six months' expenses. He can build this by allocating some of his existing resources, which include cash of Rs 50,000, fixed deposit worth Rs 1 lakh, gold worth Rs 77,000 and a mutual fund investment of Rs 13,000. This amount should be invested in a liquid fund.
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Next, Madhav wants to save for his son's education when he is 18 years old and Shanker has estimated a need of Rs 82.7 lakh in 15 years taking into account inflation of 7%. For this goal, no existing resource has been allocated and Madhav is advised to start an SIP of Rs 15,634 in a diversified equity fund for the specified time period.
After this, Madhav wants to build a corpus for his son's wedding. For this goal, he wants to amass a sum of Rs 54.27 lakh in 25 years. Again, no existing resource has been allocated and Madhav can build it by starting an SIP of Rs 2,615 in a diversified equity The Hyderabad-based couple will need to increase the equity exposure, align investments to goals and push off early retirement to ensure they achieve all their financial milestones. fund for the given time period.
The couple also wants to prepare for their retirement by building a kitty of Rs 2.07 crore in 20 years since Madhav wants to retire at 55 years. To achieve this goal, Shanker suggests he allocate his PPF and EPF corpus of Rs 3 lakh, besides the mutual fund investment of Rs 2 lakh and the remaining gold worth Rs 4.23 lakh. These will combinedly yield Rs 1.2 crore in the specified period. For the deficit amount, Madhav will have to start an SIP of Rs 8,097 in a diversified equity fund. However, if Madhav decides to work till 60 instead of 55, he can build a bigger corpus for retirement or fulfil other goals.
Madhav is now left with a surplus of Rs 7,588 and has two goals: buying a car and a house. However, before he starts investing for these, he should try to close his personal loan of Rs 3 lakh, for which he is paying an EMI of Rs 5,000. He should use Rs 7,588 and any increase in income to raise the EMI and repay the loan in 1.5-2 years. After this, he can use the surplus amount, including a rise in income of 5%, to save for his goal of buying a car worth Rs 5 lakh in the next two years. He can do so by investing the sum in a debt fund.
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As for his goal of buying a house worth Rs 25-30 lakh, he can start investing for it after four years when he has repaid the loan and bought the car. This amount, along with any bonus and hike in income, can be used to save for the house. He should, however, review the situation after four years and calculate how much he can save as down payment and how much loan he will be able to take till he retires. It is advisable that he continue to work till 60 years if he wants to achieve all his goals comfortably.
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How aggressive investing will stand the Barmans in good stead
, ET Bureau|
10 Aug, 2015, 08.00AM IST
It's good to question your decisions, especially when it comes to your finances. The exercise not only helps explore better avenues to make your money work harder, but also seek expert advice to point you in the right direction. Faridabad-based Barmans have handled their finances better than most and have a net worth of Rs 1.14 crore, but are still worried about their ability to meet their goals.
This is why they have sought professional advice. To help the young couple streamline their portfolio and plug the gaps, financial planner Pankaaj Maalde will prepare a blueprint to serve as a guideline.
The Barmans have a high saving and investing ratio, which will stand them in good stead. They have taken several other good decisions, including the purchase of a house and another property for investment, exposure to equity through mutual funds and no liabilities. On the flip side, they have failed to secure their risks and have laid a greater emphasis on debt though they could have taken a higher exposure to equity since their goals are long-term in nature. The goals include building an emergency corpus, buying a car, saving for their future child's education and wedding, and their retirement.
Their portfolio comprises 45% debt, which includes debt funds, PPF and EPF, while 17% equity is formed by equity funds and ETFs. Real estate comprises 33% and gold makes up the remaining 5%. Maalde explains how to assign their existing resources to goals so that they can be achieved in a time-bound manner. To begin with, however, he shall assess their insurance portfolio.
As for health insurance, the couple is relying only on the cover provided by the employers. Hence, Maalde suggests that they buy a family floater plan worth Rs 10 lakh, which will cost them Rs 16,000 a year. Rahul should also buy a Rs 5 lakh policy for his mother, which will come for Rs 20,000 a year. Besides these, Rahul should pick up critical illness and accident disability plans worth Rs 25 lakh each, at a cost of Rs 10,000 per annum. This will result in an additional premium cost of Rs 4,375 a month and can be sourced from the surplus after the realignment of investments.
Road map for the future
Next, they want to buy a car worth Rs 7 lakh by next year. For this, they can use the Rs 7 lakh in their MIP fund and are advised not to take a loan. The couple also wants to save for their future child's education, for which they have estimated a need of Rs 93 lakh in 19 years, and another Rs 1.17 crore in 22 years for higher education. For the former, Maalde has allocated a fund investment worth Rs 2.8 lakh and the continuation of an SIP of Rs 5,500 in an existing equity scheme. For higher education, they can allocate an existing equity scheme worth Rs 2.75 lakh. Besides this, they should continue with the SIP of Rs 5,500 in an existing equity fund.
For the child's wedding, the couple can allocate their gold investment and an existing scheme worth Rs 2.9 lakh. They also need to continue investing Rs 2,000 in an equity fund through SIPs. This will yield the desired corpus of Rs 1.6 crore in 26 years.
Finally, for their retirement, they need a sum of Rs 10.2 crore in 30 years. For this, Maalde has allocated their PPF and EPF funds, cash holding, and debt funds. They should, however, transfer the debt investment to a diversified equity fund via STPs, as suggested. They also need to continue investing Rs 7,000 in an equity fund via SIPs. These will provide the required corpus for retirement in the specified time.
The couple will be left with a surplus of Rs 7,083, which can be invested for any other goal. Besides, the LIC maturity value and the second property can act as cushion if Deepanjali decides to quit her job.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
This is why they have sought professional advice. To help the young couple streamline their portfolio and plug the gaps, financial planner Pankaaj Maalde will prepare a blueprint to serve as a guideline.
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Existing financial status
Rahul Barman is 30 and works for a telecom company, while his 26-year-old wife, Deepanjali, is an HR professional employed with a software firm. The couple lives in Faridabad in their own house and are planning a child by next year, while Rahul's 62-year-old mother is a dependant. The couple brings in a combined monthly income of Rs 72,000, of which Rs 32,500 is spent in household expenses, Rs 8,042 as insurance premium, while Rs 28,083 is invested, leaving them with a surplus of Rs 3,375.The Barmans have a high saving and investing ratio, which will stand them in good stead. They have taken several other good decisions, including the purchase of a house and another property for investment, exposure to equity through mutual funds and no liabilities. On the flip side, they have failed to secure their risks and have laid a greater emphasis on debt though they could have taken a higher exposure to equity since their goals are long-term in nature. The goals include building an emergency corpus, buying a car, saving for their future child's education and wedding, and their retirement.
Their portfolio comprises 45% debt, which includes debt funds, PPF and EPF, while 17% equity is formed by equity funds and ETFs. Real estate comprises 33% and gold makes up the remaining 5%. Maalde explains how to assign their existing resources to goals so that they can be achieved in a time-bound manner. To begin with, however, he shall assess their insurance portfolio.
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Insurance portfolio
The Barmans currently have three traditional plans for which they are paying a high premium, but Maalde suggests that they retain all three as a debt component of their portfolio since the returns are likely to beat inflation. This also means that Rahul is not insured adequately for life and should buy an online term plan worth Rs 50 lakh for 30 years. It will cost him Rs 6,500 in annual premium. Deepanjali doesn't need to be insured as of now.As for health insurance, the couple is relying only on the cover provided by the employers. Hence, Maalde suggests that they buy a family floater plan worth Rs 10 lakh, which will cost them Rs 16,000 a year. Rahul should also buy a Rs 5 lakh policy for his mother, which will come for Rs 20,000 a year. Besides these, Rahul should pick up critical illness and accident disability plans worth Rs 25 lakh each, at a cost of Rs 10,000 per annum. This will result in an additional premium cost of Rs 4,375 a month and can be sourced from the surplus after the realignment of investments.
Road map for the future
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Before planning for their goals, Maalde suggests that the couple revamp their mutual fund portfolio. They have invested in too many funds and should reduce these to 4-5 so that the portfolio becomes more manageable. They have also invested heavily in debt funds and this amount should be shifted gradually to equity plans through systematic transfer plans (STPs). They are also advised to review their real estate investment periodically.
Now, the Barmans can start planning for their goals, beginning with the contingency corpus, which amounts to Rs 2.7 lakh considering their six months' expenses. They should also keep a buffer amount of Rs 5 lakh for their mother's medical needs, bringing the total corpus to Rs 7.7 lakh. They can source this from their existing investment of Rs 7.37 lakh in one of the mutual funds and invest it in an ultra short-term debt fund.Next, they want to buy a car worth Rs 7 lakh by next year. For this, they can use the Rs 7 lakh in their MIP fund and are advised not to take a loan. The couple also wants to save for their future child's education, for which they have estimated a need of Rs 93 lakh in 19 years, and another Rs 1.17 crore in 22 years for higher education. For the former, Maalde has allocated a fund investment worth Rs 2.8 lakh and the continuation of an SIP of Rs 5,500 in an existing equity scheme. For higher education, they can allocate an existing equity scheme worth Rs 2.75 lakh. Besides this, they should continue with the SIP of Rs 5,500 in an existing equity fund.
For the child's wedding, the couple can allocate their gold investment and an existing scheme worth Rs 2.9 lakh. They also need to continue investing Rs 2,000 in an equity fund through SIPs. This will yield the desired corpus of Rs 1.6 crore in 26 years.
Finally, for their retirement, they need a sum of Rs 10.2 crore in 30 years. For this, Maalde has allocated their PPF and EPF funds, cash holding, and debt funds. They should, however, transfer the debt investment to a diversified equity fund via STPs, as suggested. They also need to continue investing Rs 7,000 in an equity fund via SIPs. These will provide the required corpus for retirement in the specified time.
The couple will be left with a surplus of Rs 7,083, which can be invested for any other goal. Besides, the LIC maturity value and the second property can act as cushion if Deepanjali decides to quit her job.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help the Ambaselkars achieve their goals
, ET Bureau|
3 Aug, 2015, 08.00AM IST
It's good to be ambitious. However, most people fail to factor in reality while thinking about their long-term goals. Unless you take into account the rise in income, inflation and returns, you are likely to make erroneous calculations. Similarly, what you would ideally like to spend for the milestone events in your life may not be in conjunction with your financial reality.
Hence, framing goals is a critical exercise, which dictates the quantum, length and pattern of investment. This is why Mumbai-based Ambaselkars need to conduct this task with alacrity and ensure that they are able to achieve all their financial objectives without difficulty. It helps that they are young and just starting out with their financial planning and, hence, have a lot of time to iron out any irritants. Feroze Azeez of Anand Rathi Private Wealth Management will help them do so and formulate a plan for the couple.
Currently, the couple's portfolio is meagre, with Rs 2.5 lakh in stocks and Rs 80,000 as cash in bank. The education loan means that their net worth is in the negative, but since they are at the start of their financial lives, there's enough time for them to build it and achieve all their goals. The goals include having a contingency corpus, buying a car and a house, taking a foreign vacation, saving for their future child's education and wedding, and for their retirement. The couple has been slightly ambitious and may need to downsize a few goals to ensure that they achieve all of them. First, however, Azeez will assess their insurance needs.
Road map for the future
After taking care of their insurance needs, the family can begin with goal planning. However, they will need to stagger their plan in three phases due to the surplus constraint. In the first phase, they should build the emergency corpus, for which they will need a sum of Rs 1.65 lakh that is equal to their three months' expenses. For this, they can allocate their cash holding and accumulate the surplus of Rs 23,129 for four months. This amount should be deposited in an ultra short-term debt fund.
In the next phase, which will begin after four months when the contingency corpus is built, the couple can start investing for their goals of buying a house and retirement. The couple wants to buy a house worth Rs 2 crore, for which they want to amass a down payment amount of Rs 40 lakh in seven years. However, they will need to push back the goal by 10 years and reduce the goal amount to Rs 1 crore.
The final phase of the plan will begin after 2.2 years when the education loan has been repaid and leaves the couple with an additional investible surplus of Rs 15,000. They can continue to invest for retirement and increase the SIPs to Rs 22,000 for the house.
(Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management)
Hence, framing goals is a critical exercise, which dictates the quantum, length and pattern of investment. This is why Mumbai-based Ambaselkars need to conduct this task with alacrity and ensure that they are able to achieve all their financial objectives without difficulty. It helps that they are young and just starting out with their financial planning and, hence, have a lot of time to iron out any irritants. Feroze Azeez of Anand Rathi Private Wealth Management will help them do so and formulate a plan for the couple.
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Existing financial status
Saurabh Ambaselkar is 28 years old and works in the financial services sector, while his wife, Prutha, 25, is employed with an e-commerce startup. Together, the couple brings in a monthly salary of Rs 79,294. Of this, Rs 20,000 is spent in household expenses, while another Rs 20,000 goes as house rent. Besides this, the couple shells out Rs 15,000 as EMI for a Rs 4 lakh education loan, and Rs 1,165 on insurance premium. This leaves them with a surplus of Rs 23,129 a month, which needs to be invested in the right avenues for maximising returns.Currently, the couple's portfolio is meagre, with Rs 2.5 lakh in stocks and Rs 80,000 as cash in bank. The education loan means that their net worth is in the negative, but since they are at the start of their financial lives, there's enough time for them to build it and achieve all their goals. The goals include having a contingency corpus, buying a car and a house, taking a foreign vacation, saving for their future child's education and wedding, and for their retirement. The couple has been slightly ambitious and may need to downsize a few goals to ensure that they achieve all of them. First, however, Azeez will assess their insurance needs.
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Insurance portfolio
The Ambaselkars have displayed a degree of awareness in taking care of their basic insurance needs. They have two term plans worth Rs 60 lakh, which is sufficient for now but should be increased to Rs 1 crore once they have a child in two years' time. As for health insurance, they have a family floater plan worth Rs 5 lakh, which can be increased to Rs 10 lakh once they have the child. At that time, they can also consider purchasing accident disability and critical illness plans worth Rs 25 lakh each. Hence, they don't have to buy any additional insurance immediately.Road map for the future
After taking care of their insurance needs, the family can begin with goal planning. However, they will need to stagger their plan in three phases due to the surplus constraint. In the first phase, they should build the emergency corpus, for which they will need a sum of Rs 1.65 lakh that is equal to their three months' expenses. For this, they can allocate their cash holding and accumulate the surplus of Rs 23,129 for four months. This amount should be deposited in an ultra short-term debt fund.
In the next phase, which will begin after four months when the contingency corpus is built, the couple can start investing for their goals of buying a house and retirement. The couple wants to buy a house worth Rs 2 crore, for which they want to amass a down payment amount of Rs 40 lakh in seven years. However, they will need to push back the goal by 10 years and reduce the goal amount to Rs 1 crore.
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For this goal, they can allocate their stock value of Rs 2.5 lakh, which will yield Rs 7.76 lakh in the given period. However, it is advisable to shift the amount to mutual funds. They will also have to start investing Rs 15,000 through an SIP in an equity fund and, after two years, increase this amount to Rs 22,000 when they have repaid the education loan. This will help them build a corpus of nearly Rs 53 lakh.
For the remaining amount, they can take a loan, and the EMI can be paid with the increase in income. For the goal of retirement, they have estimated a need of Rs 4.5 crore in 30 years and can build it by investing Rs 8,000 via an SIP in an equity fund after four months. This will help them build the required amount in the specified period.The final phase of the plan will begin after 2.2 years when the education loan has been repaid and leaves the couple with an additional investible surplus of Rs 15,000. They can continue to invest for retirement and increase the SIPs to Rs 22,000 for the house.
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Besides these goals, Ambaselkars can start planning for their child's education and wedding. For the education expenses, they have estimated a need of Rs 2 crore in 20 years. However, this sum is too high and they should bring it down to Rs 80 lakh. They can achieve this by investing Rs 5,800 through SIPs in an equity fund for the given period.
As for the child's wedding, they should again bring down the goal value of Rs 2 crore to Rs 1 crore in 30 years. This goal can be achieved by starting an SIP of Rs 1,900 in an equity fund for the specified time. Any increase in income can be used to achieve the other goals of buying a car and foreign vacation. They can also increase the investment for existing goals and should review their financial situation after two years when they have the child.(Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management)
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High monthly saving to help Kumars' meet goals
, ET Bureau|
27 Jul, 2015, 08.00AM IST
The rising awareness about financial planning has seen many of our readers start with it at an early age. More importantly, they do not hesitate to seek professional advice if they believe they are ill-equipped to handle their finances. One such reader is Noida-based Mohit Kumar, who is unsure if he will be able to meet all his goals. Though he is just 30 years old, he has a high net worth of nearly Rs 67 lakh and has already purchased a house.
However, his portfolio is heavily skewed towards real estate and he has a high cash holding. The biggest mistake, however, is not investing his savings and letting the money idle in his bank account. In later life, such decisions can cost heavily in terms of lost opportunity, but Kumar can rectify it by starting investing immediately. Financial adviser Pankaaj Maalde will help Mohit prepare a plan that will tell him how much to invest in which avenue so that he can maximise his returns.
Existing financial status
Mohit Kumar is an IT professional and is married to 28-year-old Ishita, who is a banker. The couple does not have any children as of now but "we are planning one in a couple of years," says Mohit. "This is also the reason I want to know how to manage my finances and meet all my goals, especially after my wife quits working when we have the baby," he adds.
While Mohit brings in a monthly salary of Rs 75,000, Ishita gets Rs 25,000. Of the combined income of Rs 1 lakh, Rs 38,333 goes in monthly household expenses.
Another Rs 30,061 is allocated to the EMI for a Rs 29 lakh home loan that Kumar has taken. The house they have bought is worth Rs 65 lakh and Mohit is expecting another Rs 20 lakh as a share in parental property. This leaves the couple with a surplus of Rs 31,606, which needs to be invested judiciously for the goals.
The goals include building an emergency corpus, buying a car, planning for their future child's education and their own retirement. As for their portfolio, they have 76% in
real estate, while the 20% debt comprises the EPF corpus of Rs 3 lakh and a fixed deposit of Rs 25,000. The small equity component includes stocks worth Rs 15,000 and mutual funds worth Rs 78,000.
Before Maalde prepares a blueprint for them, he will assess their insurance needs and analyse their portfolio.
Insurance portfolio
The couple has not taken any measure when it comes to securing their risk. They are covered for life and health by employers, but need to buy independent insurance, especially if Ishita quits working after the baby and Mohit changes jobs. Hence, Maalde suggests that Mohit buy an online term plan for Rs 1 crore and Ishita for Rs 30 lakh, which will cost them Rs 16,000 a year.
As for health insurance, the couple is advised to pick up a family floater plan worth Rs 10 lakh, which will cost Rs 15,000 annually and Rs 3 lakh policy for Mohit's mother at an annual premium of Rs 12,500. Maalde also suggests Mohit pick up accidental disability and critical illness plans worth Rs 25 lakh each at a cost of Rs 10,000 a year. The total monthly premium will come to Rs 4,458 and can be sourced from the surplus.
Road map for the future
After insurance planning, the couple can move towards their goals. To start with, they need an emergency corpus equal to three months' expenses, which amounts to `2.37 lakh. For this, they can fall back on their existing resources, including Rs 2 lakh cash in their savings bank account and the fixed deposit of Rs 25,000. This amount should suffice for now and should be parked in an ultra short term fund.
Before planning for other goals, Maalde suggests that they reschedule their home loan in order to increase the surplus. They can extend the tenure from the existing 16 years to 25 years, which will reduce their EMI from Rs 30,061 to Rs 26,000, creating an additional amount of Rs 4,061 and raising the surplus to Rs 35,667.
The couple's first goal is buying a car worth Rs 6 lakh in one year. For this, Maalde suggests that they take a loan for seven years, which will result in an EMI of Rs 10,000 at a rate of Rs 10.25%. This amount can be sourced from the increased surplus.
Next, Kumars want to save for their daughter's education, for which they have estimated a need of Rs 43 lakh when she is 18 years old. To achieve this goal, they will have to start an SIP of Rs 4,500 in an equity diversified fund. For her higher education when she is 21 years old, they will need nearly Rs 81 lakh. To meet this goal, they need to invest `5,500 through an SIP, again in an equity diversified fund. These investments will help cobble together the required amount in the specified time frame.
Finally, for their goal of retirement, Maalde has estimated that they will need Rs 10.5 crore. Mohit wanted to retire at 40 and start his own business, but this is not feasible given his financial status. Hence, he should consider continuing to work till 60 and assign his existing resources to the goal. These include stocks and mutual fund investments, EPF corpus, and the property worth Rs 20 lakh. These will help muster Rs 5.58 crore in 30 years. For the remaining amount, he should start an SIP of Rs 11,000 in an equity diversified fund.
To retain the income level and make up for the deficit when Ishita stops working in a couple of years, Mohit plans to switch to a better paying job. This will ensure that he continues to invest for all his goals.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, his portfolio is heavily skewed towards real estate and he has a high cash holding. The biggest mistake, however, is not investing his savings and letting the money idle in his bank account. In later life, such decisions can cost heavily in terms of lost opportunity, but Kumar can rectify it by starting investing immediately. Financial adviser Pankaaj Maalde will help Mohit prepare a plan that will tell him how much to invest in which avenue so that he can maximise his returns.
Existing financial status
Mohit Kumar is an IT professional and is married to 28-year-old Ishita, who is a banker. The couple does not have any children as of now but "we are planning one in a couple of years," says Mohit. "This is also the reason I want to know how to manage my finances and meet all my goals, especially after my wife quits working when we have the baby," he adds.
While Mohit brings in a monthly salary of Rs 75,000, Ishita gets Rs 25,000. Of the combined income of Rs 1 lakh, Rs 38,333 goes in monthly household expenses.
Another Rs 30,061 is allocated to the EMI for a Rs 29 lakh home loan that Kumar has taken. The house they have bought is worth Rs 65 lakh and Mohit is expecting another Rs 20 lakh as a share in parental property. This leaves the couple with a surplus of Rs 31,606, which needs to be invested judiciously for the goals.
The goals include building an emergency corpus, buying a car, planning for their future child's education and their own retirement. As for their portfolio, they have 76% in
real estate, while the 20% debt comprises the EPF corpus of Rs 3 lakh and a fixed deposit of Rs 25,000. The small equity component includes stocks worth Rs 15,000 and mutual funds worth Rs 78,000.
Before Maalde prepares a blueprint for them, he will assess their insurance needs and analyse their portfolio.Insurance portfolio
The couple has not taken any measure when it comes to securing their risk. They are covered for life and health by employers, but need to buy independent insurance, especially if Ishita quits working after the baby and Mohit changes jobs. Hence, Maalde suggests that Mohit buy an online term plan for Rs 1 crore and Ishita for Rs 30 lakh, which will cost them Rs 16,000 a year.
As for health insurance, the couple is advised to pick up a family floater plan worth Rs 10 lakh, which will cost Rs 15,000 annually and Rs 3 lakh policy for Mohit's mother at an annual premium of Rs 12,500. Maalde also suggests Mohit pick up accidental disability and critical illness plans worth Rs 25 lakh each at a cost of Rs 10,000 a year. The total monthly premium will come to Rs 4,458 and can be sourced from the surplus.
Road map for the future
After insurance planning, the couple can move towards their goals. To start with, they need an emergency corpus equal to three months' expenses, which amounts to `2.37 lakh. For this, they can fall back on their existing resources, including Rs 2 lakh cash in their savings bank account and the fixed deposit of Rs 25,000. This amount should suffice for now and should be parked in an ultra short term fund.
Before planning for other goals, Maalde suggests that they reschedule their home loan in order to increase the surplus. They can extend the tenure from the existing 16 years to 25 years, which will reduce their EMI from Rs 30,061 to Rs 26,000, creating an additional amount of Rs 4,061 and raising the surplus to Rs 35,667.
The couple's first goal is buying a car worth Rs 6 lakh in one year. For this, Maalde suggests that they take a loan for seven years, which will result in an EMI of Rs 10,000 at a rate of Rs 10.25%. This amount can be sourced from the increased surplus.
Next, Kumars want to save for their daughter's education, for which they have estimated a need of Rs 43 lakh when she is 18 years old. To achieve this goal, they will have to start an SIP of Rs 4,500 in an equity diversified fund. For her higher education when she is 21 years old, they will need nearly Rs 81 lakh. To meet this goal, they need to invest `5,500 through an SIP, again in an equity diversified fund. These investments will help cobble together the required amount in the specified time frame.
Finally, for their goal of retirement, Maalde has estimated that they will need Rs 10.5 crore. Mohit wanted to retire at 40 and start his own business, but this is not feasible given his financial status. Hence, he should consider continuing to work till 60 and assign his existing resources to the goal. These include stocks and mutual fund investments, EPF corpus, and the property worth Rs 20 lakh. These will help muster Rs 5.58 crore in 30 years. For the remaining amount, he should start an SIP of Rs 11,000 in an equity diversified fund.
To retain the income level and make up for the deficit when Ishita stops working in a couple of years, Mohit plans to switch to a better paying job. This will ensure that he continues to invest for all his goals.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
 |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
 |
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
| |
Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
| |
| |
Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
| |
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
| |
Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Comments (3)
Add Your Comments
How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
| |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
| |
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
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Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
 |
Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
 |
Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
 |
Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
 |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
 |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
 |
Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
 |
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
 |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
 |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
 |
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
 |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
 |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
 |
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
 |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
 |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Add Your Comments
Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
 |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
 |
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
 |
Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
 |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
 |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
Comments (7)
Add Your Comments
How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
| |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
| |
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
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Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
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Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
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Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
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Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
| |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
| |
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
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Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
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Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
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Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
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Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
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Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
Comments (7)
Add Your Comments
How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
Comments (5)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
| |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
| |
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
| |
Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
| |
Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
| |
Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
| |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
| |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
| |
Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
| |
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
| |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
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Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
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Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
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Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
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Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
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Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
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Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
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How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
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Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
| |
Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
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Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
| |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
| |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
| |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
| |
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
| |
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
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Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Add Your Comments
Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
| |
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
| |
Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
Comments (7)
Add Your Comments
How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
Comments (5)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
| |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
| |
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
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Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
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Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
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Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
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Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
| |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
| |
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
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Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
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Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
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Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
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Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
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Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
Comments (7)
Add Your Comments
How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
Comments (5)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
| |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
| |
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
| |
Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
| |
Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
| |
Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
| |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
| |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
| |
Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
| |
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
| |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
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Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
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Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
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Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
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Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
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Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
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Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
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How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
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Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
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Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
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Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
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Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
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Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
Comments (3)
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
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If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
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"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
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Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
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Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
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The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
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Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Add Your Comments
Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
| |
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
| |
Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
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How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
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Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
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Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
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Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
| |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
| |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
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If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
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"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
| |
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
| |
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Add Your Comments
Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
| |
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
| |
Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
Comments (7)
Add Your Comments
How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
Comments (5)
Add Your Comments
Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
| |
Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
| |
Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
| |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
| |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
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"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Add Your Comments
Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
| |
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
| |
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
Comments (0)
Add Your Comments
Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
| |
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
| |
Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
Comments (7)
Add Your Comments
How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
Comments (5)
Add Your Comments
How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
| |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
| |
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
| |
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
| |
Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
| |
Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
| |
Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
| |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
| |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
| |
Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
| |
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
| |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
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Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
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Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
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Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
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Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
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Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
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Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
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How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
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Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
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Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
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Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
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Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
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Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
Comments (3)
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
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If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
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"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
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Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
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Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
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The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
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Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Add Your Comments
Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
| |
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
| |
Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
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How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
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Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
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Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
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Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
| |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
| |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
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If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
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"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
| |
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
| |
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
| |
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
| |
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
Comments (0)
Add Your Comments
Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
| |
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
| |
Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
Comments (7)
Add Your Comments
How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
Comments (5)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
| |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
| |
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
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Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
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Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
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Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
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Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
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Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
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Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
| |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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Here’s how salaried Chavan can cut his tax outgo to nil
17 Aug, 2015, 08.41AM IST
By Sudhir Kaushik
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
He is salaried and also earns rent from property but his tax outgo is a mere 2% of his total income. Even so, Pravin Chavan can cut his tax to nil if his employer agrees to rejig his salary structure and he puts away more in tax saving investments.
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Much of his tax can be reduced if Chavan utilises the full Sec 80C investment limit of Rs 1.5 lakh. Right now he puts only Rs 15,400 in a life insurance policy and another Rs 21,600 goes into his Provident Fund. Given his age, he should have a large equity exposure. If he puts Rs 92,000 into an ELSS fund, his tax will reduce by almost Rs 9,200.
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Chavan should also ask his employer to reduce his fully-taxable special allowance. Instead, he should ask for reimbursements against expenses for telephone, newspapers and periodicals. If he gets Rs 24,000 a year under these two heads, the tax comes down by around Rs 4,800.
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The tax can get pruned further to zero if the employer agrees to put Rs 18,000 (10% of basic) on Chavan's behalf in the NPS under Sec 80CCD(2). Chavan's parents are dependent on him. He should enhance the health insurance cover if required. Preventive health checkup will also be eligible for tax deduction under Sec 80D.
The author is Co-Founder of Taxspanner.com
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Redington India: Getting better due to Digital India push
, ET Bureau|
17 Aug, 2015, 08.34AM IST
Analysts are getting bullish on Redington India, despite weak first quarter results. This is because the company has started showing significant improvement at the operational level. Earnings before interest, taxes, depreciation and amortization, on the back of improving margins, rose 21% even as sales grew just 6%. Consolidated net profit grew by a modest 5% because of a 30% year-on-year hike in the company's tax expenses.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
Though the demand for desktops and laptops has been falling in recent yearsâ€"60% of Redington's domestic revenue comes from IT productsâ€" going forward, it is expected to remain stable because of the impending revival in IT spending due to the government's digital India push. Given that Redington along with Ingram Micro commands about 70% of the IT goods distribution market share, it will be a major beneficiary of a revival in domestic IT spending.
| |
Also, due to a low smartphone penetration in India, this business vertical should continue to do well for the company for several more years. However, there will be some impact on the company's distribution business dedicated to Apple products, as Apple has added a new distributor, BrightStar, for exclusive distribution of iPhones in North India from January 2015. On the flip side, this should help improve margins of Redington by 20 basis points as it will be able to use the available capacity to distribute highmargins product. Apple offers lesser margins to distributors compared to other companies. For instance, Xiaomi, a leading Chinese smartphone manufacturer, that has been selling phones only through the online platform has decided to go the brick-and-mortar route and recently appointed Redington as its distributor.
The expected e-commerce boom and the introduction of the Goods and Services Taxâ€"whenever it happensâ€"will also help Redington scale up its newly-launched logistics vertical.
| |
Though conservative in approach, the management continues to tap new verticals, product categories and geographies to fuel its overseas growth. Besides serving more than 100 brands in India via 88 warehouses, Redington serves more than 80 brands overseasâ€" West Asia, Turkey and Africaâ€"through its 22 warehouses. As much as 59% of its consolidated revenue is from its overseas operations.
According to consensus estimates, the company's consolidated revenue and net profit is expected to grow 13% and 17% respectively, between 2014-15 and 2016-17. After the recent correction, the company 's stock is now trading at 12-times its trailing earnings per share and, therefore, is a good long-term bet.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Five smart things to know about Treasury Bills (T-bills)
ET Bureau|
17 Aug, 2015, 08.42AM IST
1) T-bills are shortterm securities issued on behalf of the government by the RBI and are used in managing shortterm liquidity needs of the government.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
2) 91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
3) The RBI announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
4) Treasury bills are issued at a discount and are redeemed at par. The difference is the interest to the investor.
5) Provident funds and banks are the large buyers of T-bills for their statutory need to hold government securities.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Four things you need to know about e-verification of IT returns using EVC
ET Bureau|
17 Aug, 2015, 08.42AM IST
A taxpayer is required to verify the online income tax return filed by him by submitting a signed hard copy of the same to the Income Tax Central Processing Unit. From this year, this verification can also be carried out online. This will save the taxpayer the requirement of sending the signed hard copy of the return to the income tax office. There are different ways in which one can e-verify his income tax return. It can be carried out using the EVC sent to one's registered email id or by using Net banking.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
Electronic Verification Code (EVC)
A taxpayer who files his return using the Income Tax Department's e-filing process can generate the EVC before filing the return or while filing. The EVC is a 10 digit code with a 72 hour validity. It is mailed to the registered email id of the tax payer.
Website
Log in to www.incometaxindiaefiling.gov.in and enter login and password details. Select "E-file" tab and choose "Generate EVC" option. You will get two options: "generate e-filing OTP" or "generate EVC through Net banking".
E-filing OTP
This can be used for returns with net income of less than `5 lakh and there is no refund. On clicking this, EVC is generated and sent to the registered email id of the user. Once the EVC is generated, one can again login to the e-filing website, choose "E-verify" and select the option "I already have an EVC to e-verify my return". The EVC must be filled in the box provided and once submitted, the e-verification of the return is complete.
EVC through Net banking
This is for returns with income of `5 lakh or more. One is directed to a page where one can select the bank through which one would like to do the e-verification. On selecting the bank and logging into Net banking, select e-filing through Net banking option. The e-verify option will be active for returns filed by user. On clicking "e-verify" and "continue", an EVC will be generated and automatically applied to the return.
Points to note
> EVC is unique to a PAN and can validate one return. If there is a revision or rectification, a fresh EVC is needed.
> The taxpayer can still use the method of sending signed physical copy of the return to the CPC.
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The bond market looks very attractive at this point: Mihir Vora, Max Life Insurance
, ET Bureau|
17 Aug, 2015, 08.29AM IST
The country is looking at a cyclical recovery. The Indian consumer will benefit immensely from lower inflation and interest rates. With the crash in global commodities, fiscal deficit and balance-ofpayment is likely to improve significantly, Mihir Vora, Director & Chief Investment Officer, Max Life Insurance, tells Sanket Dhanorkar.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
Is the current political log jam threatening to stall India's recovery process?
We believe that India is in for a steady cyclical recovery aided by the low base of the past three years, lower inflation expectations, lower interest rates and a pick-up in government spending. The sharp drop in global commodity prices will have a structural impact on the trade, current account and fiscal deficits and give the government leeway to carry out further structural reforms like fuel price de-regulation, subsidy reduction etc.
These factors are independent of any major structural steps or reform measures that the government may implement.
As of now, analysts and fund managers are not building any major upside from initiatives like GST implementation or the land acquisition Act etc. If no major bills are passed in this session, there would not be a significant change in the profit estimates for 2015-16 or 2016-17, for that matter. There would be a short-term sentimental negative reaction in markets but not much impact on real businesses.
On the other hand, if some key bills do get passed, it would create an environment of optimism and businesses may start releasing some of the capital that they were conserving and invest in fresh manufacturing capacity.
What is your assessment of the June quarter earnings show?
A significant factor to keep in mind while analysing results for the next few quarters is the sharp fall in commodity prices. Many of our largest companies are either producers or significant users of commoditiesâ€"oil and gas, petrochem, iron and steel, non-ferrous metals, automobiles, paints, dyes and pigments etc. Thus we may see a trend where toplines look sluggish. However, that does not mean a sluggish bottomline as lower raw material prices lend greater margin flexibility. We expect profit growth to be in double digits by March 2016.
So far, in the quarter ended June, companies have reported sales growth in line with or below expectations, but at the net profit level, results have been either in line with or above expectations. The Sensex companies have shown revenue growth of -5% while profits are up 9%, which is 2 percentage points ahead of analyst estimates.
When are you expecting broad-based earnings recovery to finally come through?
Given the different current stages of the global and local cycles, it is difficult to imagine a scenario similar to 2005-2007, where all sectors showed robust earnings growth. As already mentioned, commodity manufacturers like energy, metals, materials etc. will lag in the medium term and commodity users will benefit. However, at the macro level, India and the Indian consumer will benefit immensely from lower inflation and interest rates. The process of healing the macroeconomic balance sheet will also be aided. We are thus bullish on consumer sectors including durables and non-durables, financials, industrials and underweight on energy, materials, metals, utilities etc. We expect earnings growth of 13-15% for the next two years.
Is the market consolidation likely to continue for some more time?
Yes, given that India was amongst the bestperforming markets over almost two years and that valuations are at average levels, markets may not move up sharply in the next few months. However, there are many stock and segment-specific exciting ideas.
Are there attractive plays in the mid-cap segment now?
Mid and small-caps have a large number of companies to choose from. With India evolving into a more mature economy, aided by globalisation and technology, there are multiple new segments which grow at rates much higher than the rest of the economy. These are typically not reflected in the large-cap indices. Segments like logistics, specialty chemicals, textiles, auto-ancillaries, machinery manufacturers etc. are some of the segments which are likely to grow at a pace faster than the rest of the economy.
How are you positioning your portfolios? Which sectors are you bullish on?
Our investment philosophy is to buy good quality stocks with visible growth triggers, at a reasonable price. Overall, we are bullish on industrials, consumers and financials and underweight on materials, energy, telecom and pharmaceuticals. We have identified sectors which are likely to be growth leaders, for example road-building, railway, auto, auto-part suppliers, defence, private banks, multiplexes etc. and are well-positioned in these segments.
Is the bond market still looking attractive? Would you suggest an accrual or duration strategy at this point?
The bond market looks very attractive at this point. Inflation and inflation expectations are likely to go down. With the crash in global commodities, the fiscal deficit and balance-of-payment is likely to improve significantly.
The RBI has cut rates by 75 basis points since the beginning of the calendar year but long-bond yields have not moved down due to global and local short-term factors and the hawkish stance in the earlier policy statements. However, it is only a matter of time before rates soften and bonds rally.
We prefer a duration strategy as we believe long-bond yields are likely to drop by 100-125 bsp in the next 18-24 months. The potential price appreciation along with current yields of about 8% makes for an attractive investment case.
Are you concerned about the deteriorating credit profile of companies?
Yes, the problems in the power sector due to fuel supply and land issues are old. However, the crash in commodity prices has also created stress in ferrous and non-ferrous metal companies. Exposures to these are, to a great degree, with PSU banks which may face increasing capital requirements. If additional capital is not provided in time, they would face growth constraints putting constraints on credit growth for the system.
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Does it make sense to opt for disease-specific medical insurance covers?
, ET Bureau|
17 Aug, 2015, 08.44AM IST
A comprehensive health plan that covers a host of ailments or a plan tailor-made for a specific disease? With health insurance companies offering niche covers for a host of diseases like cancer, diabetes, hypertension and most recently dengue, the question now is what exactly one should opt for and whether disease-specific covers make sense.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
Do you need it?
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
According to Antony Jacob, CEO, Apollo Munich Health Insurance, customer needs have evolved. There is an increased interest in benefits customised to his or her needs in addition to the basic covers.
Hence, you have Apollo Munich offering niche plans like Dengue Care, Energy to cover diabetes and hypertension and Maxima to insure outpatient treatment. Star Health and Allied Insurance has been offering niche plans for heart related disease (Cardiac Care) and diabetes (Diabetes Safe) for some time.
Cancer Care by HDFC Life and iCancer from Aegon Religare Life Insurance are the other niche products in the market.
Advantage niche plans
Some niche plans, especially those for critical diseases like cancer, are a better option than standalone critical illness policies.
"The main advantage of niche plans is that they provide coverage for the disease at all stagesâ€"early or advancedâ€"unlike critical illness plans. Critical illness plans cover only late stage cancer," says K.S. Gopalakrishnan, MD & CEO of Aegon Religare Life Insurance. Also, a regular critical ailment plan provides a lump sum benefit. It does not waive off future premiums like some cancer-specific covers in the market do.
How do niche covers compare with comprehensive health plans that covers all kinds of ailments? Says Sujoy Manna, Vice-president-Products, HDFC Life, "Usually individuals buy a comprehensive policy of Rs 2-3 lakh. This amount is insufficient for treatment of major critical illnesses, especially in the metros." However, those with a comprehensive health policy of Rs 10 lakh or more may not need extra cover. Those who do not have a higher sum assured under a comprehensive plan, can increase their coverage through a top-up policy.
The reason for considering a topup is that it insures you for way more ailments than a specialised plan at nearly the same cost.
Cost factor
Typically for a healthy 35-year-old, a top-up health plans will cost around Rs 1,000 per Rs 1 lakh.
Niche plans from health insurers are expensive compared to comprehensive health plans. Star Health and Allied Insurance's Cardiac Care policy can cost Rs 29,000 for a Rs 3 lakh annually renewable policy. Similarly, the insurer's policy for diabetes will cost nearly Rs 9,000 and Apollo Munich's Diabetes plan will cost around Rs 10,000 a year.
As against this, a comprehensive health plan covering more number of ailments will cost Rs 3,000-6,000 for a Rs 3 lakh cover. Even critical illness plans will work out cheaper.
However, specialised plans cost much less for a higher sum assured as they are longer term policies. The minimum policy term for these plans is 10 years. HDFC Life's Cancer Care will cost Rs 750-1,500 for a Rs 10 lakh policy for 10 years and Aegon Religare's iCancer will cost Rs 2,700 for a similar policy. In comparison to these, comprehensive and critical illness plans will be costly (see table).
| |
Jacob says every person should hold a basic indemnity health policy that addresses one's health status and lifestyle, but there is also need to consider additional covers for specific concerns. In case diabetes or hypertension runs in your family and there is a strong tendency to inherit such a disease, then a person should purchase a niche policy to stave off high medical expenses, he says.
Niche plans should also be considered by those who seek a basic health insurance policy, but hesitate to purchase a full-fledged policy. Salaried individuals who have a basic cover from their employers could consider enhancing their health coverage through niche plans.
But at the time of switching jobs they will have very limited insurance.
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Five steps towards freedom from financial worries
, ET Bureau|
10 Aug, 2015, 03.09PM IST
It has been accused of fuelling greed, causing conflicts and destroying lives. However, contrary to the perception that money has enslaved human beings, if managed wisely, it could be your ticket to freedom in the truest sense, unshackling you from the yoke of worries about the future.
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
While individuals spend all their working years striving to earn as much money as possible, they do not always plan well to get the best out of it. So, despite chasing wealth all their lives, many fail to save enough to sustain them through their post-retirement years. Therefore, to be truly free, you must aim for five financial freedomsâ€"from want, from uncertainty, from debt, from loss and from fraud.
We will tell you how you to secure your freedom from financial worries. From the day you start earning to the day you hang up your working boots, we cover every step and show you how you can adopt strategies to keep your money safe and growing.
The first step in your journey towards financial independence is to segregate needs from wants. From the day you start earning, the priority should be saving, not spending. Once you have met your savings target for the month, spending can claim the balance. Save at least 20-25% of your income, though some planners recommend as much as 30-40%.
At the start of your career, retirement seems far way. However, it's closer than you think. "When you are young and don't have responsibilities like children or an EMI, you should aim to save more," says certified financial planner Pankaj Mathpal. Make sure you put aside at least 10% of your income for your retirement in a mix of avenues such as diversified equity funds, PPF and NPS. Of course, the Provident Fund should be the bulwark of your retirement planning.
While retirement is the final fruit of your labour, you also need to plan for other long term goals and you can turn to equities to serve these needs best. Regular savingsâ€" whether through SIPs in funds or recurring depositsâ€"can ensure an anxiety-free life.
"Individuals should follow a bucket investment strategy. For short-term goals that are 2-3 years away, they should invest in fixed income instruments and shun equities," says financial planner Abhinav Gulechcha. For long-term goals, devise an asset allocation strategy comprising risky (equity and real estate) and risk-free (fixed deposits, debt mutual funds, PPF) and invest accordingly.
It is easy to give in to temptation to break your FDs or skip an SIP and use the money to fulfill a want. While this will make you happy for the moment, you may regret compromising your more important goals later.
| |
Freedom from want
Put away enough so that you do not ever run out of money for your goals.Your winning moves:
- Save at least 10% of your income for retirement
- Start saving for kids' education when they are born
- Earmark savings for specific financial goals
- Increase savings in line with rise in income
- Don't dip into savings for discretionary expenses
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Unexpected expenses can lay even the best-formed financial plan to waste. They can set the clock back on your retirement planning and reduce the amount available for your children's education. They can compel you to postpone your home purchase or scrap your next holiday. However, you can cushion the impact of such emergencies by planning for them.
Once again, start saving the day your start earning. Let your first investment be towards creating a contingency fund. You must set aside an amount worth three to six months of expenses in a savings bank account, short-term fixed deposit or a liquid mutual fund. They can be easily withdrawn without penalties to fund any contingency. Next, buy adequate insurance. Start with a personal accident cover, followed by a health insurance policy.
"Those living in metros must buy a health cover of at least Rs 5-10 lakh," says financial planner Harshvardhan Roongta. Opt for one even if you are covered under your employer's group health policyâ€"it helps when you are in between jobs or in the unfortunate scenario where you lose your job.
A personal accident policy offers twin benefits. It hands over the sum assured to the policyholder's dependents in case of death due to an accident. It also pays compensation to the policyholder if he or she were disabled due to an accident. A Rs 10 lakh accidental death and disability policy will cost just Rs 1,500 a year.
Buy life insurance if you have dependents. We are talking pure protection term plans, not endowment policies of Ulips. The thumb rule for adequate life cover is simpleâ€"five to six times your annual income. Do factor in liabilities and buy a larger cover if possible. A 30-year-old can buy an online term cover of Rs 1 crore for only Rs 7,000-8,000 a year.
| |
Freedom from uncertainty
Don't let unforeseen events and expenses derail your financial planning.Your winning moves:
- Buy life cover of 5-6 times your annual income
- Buy health cover of at least Rs 5 lakh for full family
- Keep contingency fund to sustain 6 months' expenses
- Take personal accident, disability cover of at least Rs 20 lakh
- Insure home and other assets against damage and theft
Your over-ambitious returns target comes with the risk of being pushed to the bottom of the pile. Making risky calls cannot be a strategy. Focus on goals rather than returns. Navi Mumbai resident Kumar Vivek (see picture) is an ideal investor. His portfolio is tilted towards equities, with a third in debt. Having already repaid a housing loan, he is debt-free too.
Add adequate life and health cover, and he is as financially empowered as one can be. He has equities for long-term goals, debt for shorter term ones and investment in real estate. "Not all assets deliver good performance at the same time. Diversification minimises risk and helps fetch good returns in the long-term," say Mathpal. With a well-balanced portfolio, you would be sticking to the principle of not putting all your eggs in one basket.
| |
Freedom from loss
Don't let greed and fear define your investment strategy.Your winning moves:
- Establish a diversified portfolio and asset allocation
- Rebalance your portfolio at least once a year
- Don't go after extraordinary returns
- Match investment horizon with asset class
Indians have exhibited a reckless streak while spending and borrowing in recent years. Credit cards were seen as spending tools, swiped at will without a thought about repayment. Banks that turned conservative during the last five years after facing credit card defaults have become active againâ€"offering loans, particularly online, with the promise of lightning quick approvals. In the age of online shopping and massive discounts, it's easy to overload your shopping cart, with items you may not need.
Many don't think twice before taking a personal loan to go on holiday or a vehicle loan to upgrade a car. It's best to avoid borrowing to fund such discretional expensesâ€"or, for that matter to invest, especially in stocks. Such decisions can spell disaster for your financial stability. Unsecured loans like personal loans and credit cards carry a high interest rateâ€"from 15-44%. Secured housing loans, which also attract tax benefits, are considered 'good' loans as they help create an asset.
Sandeep Yadav and his wife had to put off their international holiday plans as they decided to buy a house first. Now, he intends to repay a part of the loan before planning a holiday. While the decision has been hard, he has managed to create a valuable asset, which will provide a sound foundation to secure his family's future.
Live within means, differentiating wants from needs. It easier said than done, as seeing your peers flaunting the latest smartphone, car or clothes is bound to trigger your itch to spend. You need to list your needs and wants. Put in your best efforts to fulfill the former, and learn to let go of the latter. If you must borrow, do not falter on repayment. Not only will it increase the interest burden and ensnare you in a debt trap, but also adversely affect your credit history. That in turn will make it difficult for you to obtain loans in future.
| |
Freedom from debt
Don't get enslaved by debt due to reckless spending.Your winning moves:
- Your EMIs should not exceed 50% of your income
- Don't borrow for frivolous expenses
- Differentiate your wants from your needs
- Ensure timely and regular repayment of loans
- Don't dip into savings for discretionary expenses
Instead of blindly putting your money on the 'hot' stock or 'high-return' scheme your friend is investing in, you would be better off evaluating any investment avenue on the basis of your risk appetite, its regulatory framework and business model.
The Indian investment scenario is littered with Ponzi schemes and fraudulent offers that have wiped out savings of small investors. It's the greed for extraordinary returns that drives individuals to invest in unsound schemes and shady companies without any track record. "You have to check and control this basic behavioral flaw. Also, before investing, check whether the scheme is regulated by regulators such as RBI, SEBI, IRDAI and PFRDA," says Gulechcha. Spend time studying the scheme's brochure before going ahead.
Always question and dig deeper into extraordinarily high returns from any product, including regulated ones. If a bank is offering a FD interest rate of 8.5%, an AA rated company is promising say 11% on its FD and another company is offering 13%, which one would you choose? Many tend to opt for the 13% return-yielding. However, it may not always be a wise decision.
"The variation should make you ponder over the reasons why the company is luring you with such a differential in return. It could be because of its inability to raise funds at say 10% from banks who may have found its business to be on a sticky wicket," cautions Roongta. Similarly, while mutual funds are transparent products, return should not be your sole parameter.
"Avoid what is too good to be true. While zeroing in on mutual funds, compare the performance against its benchmark and focus on consistency on performance," says Mathpal.
Don't forget to be alert while executing financial transactions online or at point-of-sale terminals. Falling prey to fraudulent calls or emails by revealing all your account and card details as well as PIN could allow fraudsters to siphon off all your hard-earned money.
Come August 15, make sure you take the pledge to strive towards achieving these five financial freedoms and steering clear of pitfalls that can put them at risk. Wishing you a very Happy Independence Day!
Freedom from fraud
Don't get lured into dubious investments by greed.
Your winning moves:
- Avoid investments that offer extraordinary returns
- Understand features of insurance policies before purchasing
- Adopt safety measures with credit cards, online transactions
- Don't fall for fraudulent offers of easy money
Comments (7)
Add Your Comments
How to restructure income, investments & expenses to optimise tax outgo
10 Aug, 2015, 08.00AM IST
By Sudhir Kaushik
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
(The author works with Taxspanner.com)
Like many salaried professionals, Abhay Sehgal also has income from property and investments. His salary structure is fairly tax friendly because only 8% of his total income goes in tax. However, he can bring this down significantly if his employer agrees to rejig the components of his pay package and Sehgal avails of the deductions he is eligible for.
Sehgal can ask his company to reduce the taxable special allowance and bonus. Instead, he can get reimbursements for telephone, travel and newspaper expenses. He should also ask for LTA. All these are tax free on submission of actual bills. If these add up to Rs 90,000 a year, his tax comes down by Rs 18,000. Another Rs 10,250 can be saved if the company puts 10% of his basic in the NPS under Sec 80CCD(2).
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Sehgal's father suffers from Parkinson's disease, which is one of the specified illnesses under Sec 80DDB. He can claim a deduction of up to Rs 80,000 for his treatment. That cuts his tax by another Rs 16,000. If he invests Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax comes down further by Rs 10,300.
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He should also avoid tax unfriendly fixed deposits. If he shifts some amount into debt funds, he can defer the tax till the time he withdraws the money.
(The author works with Taxspanner.com)
Comments (5)
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How a balanced portfolio will help the Nandis meet their financial targets
, ET Bureau|
20 Jul, 2015, 08.51AM IST
Balance in life almost always leads to stability. The same holds true for financial planning. A well-balanced portfolio, steady investments, sufficient risk coverage and a timely start are bound to stand in good stead for the Mumbai-based Nandis. Their portfolio includes 48% allocation to debt in the form of the PPF, EPF, fixed deposits and debt funds, 23% to equity in the form of mutual funds and stocks, and 29% to real estate.
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
However, they need a little shove in the right direction to enable proper alignment of investments with goals. To help them do so, financial planner Pankaaj Maalde will prepare a plan that enables them to achieve all their goals without impacting their lifestyle or stretching their finances.
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Existing financial status
Samrat Nandi is 36 years old and stays in Mumbai with his wife, Keya, 33, and threeyear-old son, Om. While Samrat is in banking, Keya is an IT professional. Together they bring in a monthly income of Rs 1.55 lakh. This is supplemented by Rs 5,000 a month that Samrat earns through lecturership, bringing the total income to Rs 1.6 lakh.Of this, nearly Rs 50,000 goes in household expenses, and another Rs 20,000 is paid to dependants in the family. The couple also spends Rs 2,000 on their child's education and Rs 4,363 as insurance premium. They are paying EMIs of Rs 30,000 for two home loans of Rs 36 lakh that they have taken for two properties worth Rs 90 lakh and Rs 12.5 lakh.
While one has been taken from the bank, the other has been taken from Samrat's employer. The Nandis are also making investments worth Rs 22,334 every month, including those in mutual funds via SIPs, the PPF and NPS. After accounting for this outgo, they are left with a surplus of Rs 31,304, which they want to invest for their goals.
The family's goals include setting up an emergency fund, taking a vacation, saving for their child's education and wedding, and for their own retirement. Before proposing the course of action, Maalde looks at Nandis' insurance portfolio.
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Insurance portfolio
The family has been very astute in assessing their insurance needs and taking action. While Samrat has a life cover of Rs 1.3 crore, Keya is insured for Rs 75 lakh. According to Maalde, the couple is adequately insured and should not buy any more cover. They also have a traditional cover and are advised to continue with all the plans.As for health insurance, the Nandis have bought a family floater health plan worth Rs 5 lakh and Maalde suggests that they raise this amount to Rs 10,000. In terms of premium it will cost them Rs 20,000 per annum.
He also recommends the purchase of accident disability insurance and critical illness plan worth Rs 50 lakh each for Samrat, and Rs 25 lakh each for Keya. These will combinedly cost Rs 28,000 a year. This increases their total insurance premium liability by Rs 2,970 a month and can be sourced from their surplus.
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Road map for the future
Before the Nandis start planning for their goals, they should reschedule their loan portfolio to increase their investible surplus. They are currently paying an interest rate of 8% on the loan from the employer and 11.5% for the one from the bank. They are advised to sell the property worth Rs 12.5 lakh and repay the entire home loan from the bank. This will reduce their EMI by Rs 10,000, which can be added to the investible surplus.
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Now, the Nandis can plan for their goals, starting with the building of a contingency corpus that is equal to their six months' expenses. This amounts to Rs 6 lakh and can be sourced from their fixed deposit of Rs 5 lakh and Rs 1 lakh from their cash holding in bank.
The next goal for the family is taking a vacation that will cost them Rs 7.35 lakh in five years' time. To achieve this, they will have to start an SIP of Rs 12,500 in an equity income fund for four years and withdraw the amount after five years.The next goal is saving for Om's education in two tranches. This includes a corpus for his education when he is 18, and for his higher education when he is 21 years old. For the former, they have estimated a need of Rs 32 lakh in 15 years, and for the latter, they will require Rs 80 lakh in 18 years.
To achieve the first goal, the Nandis will have to start an SIP of Rs 6,000 in an equity fund for the specified period, while for the second one, they will have to invest Rs 9,500 in a similar fund. No existing resource has been allocated to these goals.
For the goal of their child's wedding, the family wants to have a corpus of Rs 81.5 lakh in 22 years. To meet this, the couple will have to start investing a sum of Rs 7,000 through SIPs. Of this amount, they should put Rs 5,000 in an equity fund and the rest in a gold fund.
Finally, for their retirement, the family will need a kitty of Rs 8.5 crore in 24 years. For this, Maalde recommends allocating their EPF and PPF savings of Rs 8.5 lakh. They should continue to invest Rs 1,000 in the PPF annually.
Besides this, the stock holding worth Rs 4 lakh and mutual fund savings of Rs 11 lakh are assigned to this goal. They should also continue to put in Rs 9,000 in the NPS account that they have started recently till the time they retire. All these investments will yield Rs 5.2 crore in the given time period. To make up for the shortfall, the couple should start an SIP of Rs 16,500 in an equity fund to build the required corpus.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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How a staggered plan will help Aakash Singh meet his monetary targets
, ET Bureau|
13 Jul, 2015, 08.00AM IST
Aakash Vinod Singh is clueless about financial planning. At 28, this can be perceived as both a shortcoming and advantage. The drawback is that he has a bare portfolio, with a neglible corpus to show in terms of savings, investments and net worth. He doesn't know where to invest or how to reach his goals. The good thing is that at this early stage, it has made him seek professsional advice. Another positive is that he is clear about his goals and wants to be prepared to meet them. "I want to know how one can start financial planning from scratch, especially if one hasn't taken any steps till now," says Singh. The Fincart team has taken up the task of his financial education and answering his query. It will formulate a plan that will not only act as a guideline for him but also help him secure his financial future.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.
Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
Existing financial status
Singh is salaried and stays in Mumbai with his parents, aged 55 and 60 years. He is single and has no immediate plan of marrying. In fact, he is planning to study further after a year to boost his career prospects. He is currently bringing in a salary of Rs 60,000 per month and is saving barely Rs 15,000. A big chunk of his expenses, Rs 25,000, goes into repaying an education loan of Rs 3 lakh that he has taken. Besides this, Rs 20,000 is used for household expenses.
As for his portfolio, he has Rs 11,000 in his bank account, Rs 25,000 invested in stocks and another Rs 68,000 in the EPF. However, given the loan, his net worth is currently in the negative. Nevertheless, Singh wants to start planning for his goals, which include amassing funds for higher studies next year, saving for his future child's education and wedding, as well as his own retirement. However, to begin with, the Fincart team will assess his family's insurance needs and recommend changes.Insurance portfolio
Singh has not secured either his life or health though he has been planning to buy a term plan. Hence, Fincart suggests that he purchase a Rs 1 crore term plan immediately, and it will cost him Rs 10,056 a year in terms of premium.
As for a medical policy, he should consider buying health insurance worth Rs 3 lakh for himself and his father, which will invite a premium of Rs 16,949 per annum. He should also opt for a diabetic plan worth Rs 4 lakh for his mother, who suffers from diabetes, and this will come at a higher price of Rs 27,668 a year. This will result in a total premium of Rs 4,556 a month. Since he won't have enough funds to buy all these immediately, he should consider the health plans after a year when he has repaid his education loan.
Road map for the future
Before Singh can start planning for his goals, he should get rid of his education loan by prepaying it in nine months. He can do so by increasing his EMI from the existing Rs 25,000 to Rs 35,000. This means that till the loan is repaid, he will be left with a surplus of only Rs 4,162 after accounting for the term plan premium. Hence, he will have to defer all his goals by one year.
Considering the fact that he has absolutely no buffer for emergencies, Singh should focus on cobbling together a contingency fund at the earliest. According to Fincart, he should have a corpus equal to six months' expenses, which will amount to Rs 2.7 lakh. For this, he should assign his cash holding of Rs 11,000 and stock value of Rs 25,000. Besides this, he should start investing the surplus of Rs 4,162 in a short-term debt fund to build the emergency corpus.
To make up for the shortfall, he will have to invest another Rs 10,000 for 16 months in the same fund.
Next, Singh wants to do a two-year course, starting next year, to boost his career. He will pursue this while continuing with his job. For this, he wants to accumulate Rs 1 lakh for each year. However, Fincart advises that he put off this goal by another year till he repays his loan. He will then have a surplus of Rs 39,000. He can start an SIP of Rs 7,971 in an arbitrage fund and will be able to amass the required amount in one year.
For the additional Rs 1 lakh he requires in the subsequent year, he should start another SIP of Rs 3,823 in the same fund. This will help him save for the course.
Singh plans to get married after he finishes the course and is settled in his career. When he does, he wants to save for his future child's education and wedding. For the former, he has estimated a need of Rs 46.6 lakh in 20 years, and for the latter, Rs 1.36 crore in 25 years. However, these goals are likely to be pushed back by a couple of years. To meet the education goal, he will need to start an SIP of Rs 6,549 in a diversified equity fund, while for the wedding, he should start an SIP of Rs 10,905 in the same type of fund. He can start making these investments after two years, when he has built the contingency fund and amassed the corpus for first year's study.
Finally, he wants to save for retirement in 28 years. For this, he will require Rs 9.25 crore, and will have to start an SIP of Rs 42,027 in a diversified equity fund. However, he doesn't have the required funds and, hence, should start with a sum of Rs 13,650 from next year onwards. To this, he can continue to add the increase in income and any funds that are freed up after the completion of his goals. He should also consider reviewing his financial position after he completes his course, which can result in an increase in income, and take required action at that time.
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Family Finances: High income, savings to ease Kumars' financial journey
, ET Bureau|
6 Jul, 2015, 08.00AM IST
The Kumars are a poster couple for the benefits of early financial planning. A timely start gives you the advantage of compounding, the liberty to correct any investing mistakes, a long horizon to save without stretching your finances, and investing in avenues that can help your money grow faster. At 32, Anuj Kumar has a creditable net worth of Rs 65.47 lakh thanks to aggressive saving and investing since he started working.
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
Though his portfolio is heavily skewed towards debt (88 per cent) and only 12 per cent is in equity, this can be easily rectified and the family will be able to achieve all their goals with ease by allocating the existing resources and making fresh investments. Financial planner Pankaaj Maalde will help them do so by preparing a blueprint which they can follow.
Existing financial status Anuj Kumar is a 32-year-old software professional, who lives in Greater Noida with his wife and daughter. While 29-year-old Sima is a homemaker, the daughter Sparsh Aashi, is four years old. Kumar brings in a salary of Rs 1.25 lakh and gets another Rs 20,000 as rent, bringing the total income to Rs 1.45 lakh. Of this amount, Rs 55,500 is spent on household expenses, which includes a house rent of Rs 18,000. Another Rs 35,000 goes as EMI for a home loan of Rs 34 lakh that he has taken for his property worth Rs 70 lakh.
Besides these, he doles out Rs 13,792 on insurance premium and Rs 8,000 on his daughter's education. He makes investments worth Rs 18,250, mostly in recurring deposits, leaving him with a surplus of Rs 14,458. This, along with a realignment of his current investments, will help Kumar work towards his goals. The goals include building an emergency corpus, saving for child's education and wedding, as well as for their own retirement. First, however, Maalde will consider Kumar's insurance portfolio and suggest some changes.
Insurance portfolio Kumar currently has three insurance plansâ€"a term plan worth Rs 50 lakh, a pension plan which provides Rs 21 lakh of insurance and a Ulip with Rs 8 lakh worth of cover. For these plans, he pays an annual premium of Rs 1.55 lakh. Since this is a high amount and the returns from the pension plan and Ulip are unlikely to beat inflation, Kumar is advised to review these after the lock-in period of five years. He should, however, continue with his term plan though the amount is inadequate. So, he needs to purchase another term plan worth Rs 1.25 crore for 30 years, which will cost Rs 12,000 annually.
Since Sima is not working, she will not require any life insurance. As for health insurance, Kumar is covered by his employer and also has an independent family floater plan worth Rs 4 lakh. This has been a good move on his part, but Kumar should increase this amount to Rs 10 lakh and it will cost him Rs 20,000 per annum. Maalde also suggests that he buy a Rs 50 lakh accident disability insurance and Rs 50 lakh critical illness online plan, which will cost Rs 18,000 a year. The new insurance plans will not incur any additional cost and, in fact, help save Rs 3,291, which can be used for investing for his goals.
Road map for the future After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to six months' expenses. This will amount to Rs 6.93 lakh and can be sourced from his fixed deposit of Rs 5.5 lakh and recurring deposit of Rs 1.5 lakh. These sums should be invested in an ultra short term fund. Kumar is also advised to discontinue his investment in the recurring deposit. Next, Kumar can focus on his other life goals, including the education and wedding of his daughter. For the former, he has estimated a need of Rs 59 lakh in 14 years after considering an inflation of 8 per cent. Maalde has not allocated any existing resource to this goal and suggests an SIP of Rs 12,500 in an equity mutual fund.
As for the daughter's wedding, the Kumars want to save Rs 30 lakh in today's value, which will increase to Rs 1.5 crore in 21 years after adjusting for inflation. Again, Maalde has not allocated any existing resource and Kumar will need to start an SIP of Rs 11,500â€" Rs 10,000 in an equity fund and Rs 1,500 in a gold fundâ€"to accumulate the desired amount in the specified period.
Finally, Kumar wants to amass Rs 9.7 crore in 28 years to ensure a comfortable retirement. For this, he will have to assign several of his existing resources, including the EPF, PPF, cash holding in bank, stock value, the postal monthly income funds, and both the pension plan and Ulip. These will yield a corpus of Rs 7.93 crore in the given time frame. For the remaining amount, Kumar will have to start an SIP of Rs 5,000 in a diversified equity fund.
Kumar is also advised to invest the existing savings bank balance and reinvest the postal monthly income scheme funds in a diversified equity fund. He should also invest a minimum of Rs 1,000 in the PPF every year.
Besides, he can shift the entire bond fund to an equity fund. Maalde also recommends that he quit stock investment as it requires indepth research and analysis and, instead, invest in a diversified equity fund. All these measures will ensure that he reaches all goals without much difficulty. Any increase in income can be used to raise the ongoing investment and fund any other goals that the Kumars might have.
Financial plan by Pankaaj Maalde, Certified Financial Planner
(Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with 'Family Finances' as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.)
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Why the Kumars need a focused approach to meet their financial goals
, ET Bureau|
29 Jun, 2015, 08.00AM IST
One of the many advantages of financial planning is that it provides an effective reality check. Ambitious goals are tempered by financial facts and ground realities. This is why Noida-based Kumars have taken the right step in treating their financial planning seriously and approaching a professional adviser. They are in the initial stages of planning and have a net worth of nearly Rs 14 lakh. Though they have tried to diversify, their portfolio is skewed heavily towards debt. At this age and given their long-term goals, they need a much higher equity exposure. Though their goals are typical of an average investor, they may have to postpone some and push back the retirement age in view of their existing financial status. To help Kumars construct an efficient portfolio and fulfil their essential financial goals, the Fincart team will prepare a plan.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
Existing financial status
Rajnish Kumar is 31 years old and is employed in a private company. Smita Vatsa, his wife, is 29 and though she has taught in a college earlier, currently she is not working. The couple lives in Noida and don't have children though they are planning one soon.
Rajnish is bringing in a monthly salary of Rs 73,000 and after taking into account their expenses, he is left with a surplus of Rs 10,545. The other expenses include household spending of Rs 23,000, house rent of Rs 20,500, insurance premium of Rs 8,955, PPF investment of Rs 4,000 and mutual funds SIPs of Rs 6,000 every month.
The other assets in the portfolio include Rs 5 lakh in gold, Rs 2.6 lakh in fixed deposits, Rs 2.4 lakh in the EPF, Rs 1.25 lakh in the PPF, Rs 1.15 lakh in stocks, Rs 68,685 in mutual funds and Rs 10,000 as cash. They will need all these resources to meet their goals. The goals include building an emergency corpus, buying a car and house, saving for their future child's education and wedding, as well as for their own retirement. The Fincart team begins by assessing their insurance needs and suggesting some changes.
Insurance portfolio
Kumar currently has a term plan of Rs 65 lakh, an endowment plan, a Ulip and a health insurance policy. He is advised to surrender the term plan since he can purchase a higher cover of Rs 1.2 crore at a lower premium and for a longer tenure. He is also advised to surrender his other two plans since their returns are unlikely to beat inflation. The surrender value of `95,000 from the endowment plan can be used to fund one of his goals. As for the health insurance plan worth Rs 5 lakh, this is sufficient for the couple and they don't need to buy any more cover. This means that the total insurance premium will come down to Rs 2,050, saving them Rs 6,905, which can be added to the investible surplus.
After taking care of the family's insurance needs, Kumar can start planning for his goals, the first being the setting up of a contingency corpus that is equal to three months' expenses. This will amount to Rs 1.3 lakh and can be sourced from his existing cash holding of Rs 10,000 and Rs 1.2 lakh of his fixed deposit corpus.
After this, he can focus on the target of buying a house worth Rs 50 lakh in eight years. The couple wants to build a corpus of Rs 15 lakh as down payment and take a loan for the rest of the amount. However, Fincart suggests that since they won't be able to build the required sum in the given time frame, they should push back the goal by another two years. Factoring in inflation of 8%, the cost of the house will go up to Rs 92.5 lakh and the down payment sum to Rs 32 lakh. To amass this sum, they will have to start an EMI of Rs 14,359 in an equity fund and increase it by 9% every year. In 2025, they will then have to take a loan of Rs 64 lakh at 10%, which will result in an EMI of Rs 65,000. Considering the 9% rise in Kumar's income, the couple should be able to afford the EMI by then, but should still review the situation at that time.
The next goal for the couple is funding their child's education. For this, they want to have a sum of Rs 1.2 lakh every year from 2018 onwards. According to the Fincart team, this can be easily funded from their cash flow after Kumar's rise in salary.
As for the goal of the child's wedding in 25 years, they have estimated a need of Rs 1.37 crore . To achieve this, they can assign their gold holding of Rs 5 lakh and the remaining fixed deposit corpus of Rs 1.4 lakh. To make up for the shortfall, they will have to start an SIP of Rs 2,358 in an equity fund and increase it by 9% every year. This will yield the desired amount in the specified time period. Finally, the couple wants to save Rs 9.7 crore in 29 years for their retirement.
Though Kumar wanted to retire at 51, he will have to let go of this aspiration since he will not be able to amass enough corpus to build a comfortable retirement kitty. To achieve the goal, he should assign his EPF and PPF savings, stock value, mutual fund corpus and insurance surrender value. This will help muster Rs 3.48 crore, and to amass the the remaining amount, he will have to start SIPs of Rs 4,000 and Rs 6,682 in equity funds. He should also redeem his existing SIPs next year to avoid exit load and invest it in an equity fund that will optimise the returns.
The insurance surrender value should also be invested in the same fund. As for buying a car next year, the couple doesn't have enough surplus to fund it. They should either wait for income to rise or put off the child's wedding goal for a few years and use the resources allocated to it to purchase the car. This will also mean that they will have to invest a higher sum to reach the goal in the reduced time frame.
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Low savings, poor plans act as deterrents for Panigrahi to achieve financial goals
, ET Bureau|
22 Jun, 2015, 08.39AM IST
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
Existing financial status
Unmet goals can be as much a result of poor financial planning as low salary or inadequate surplus. For Delhi-based Swagat Panigrahi, this is likely to be the stumbling block to achieving goals unless he finds a way to supplement his income. The 30-year-old has done well to start financial planning early, but he will have to put in effort and initiate changes to get his finances on track. To help him do this is Feroze Azeez of Anand Rathi Private Wealth Management, who will analyse his financial status and prepare a plan that can serve as a guideline for the future.
Panigrahi is an HR professional in a private firm living with his father in a rented accommodation in Delhi. He belongs to Odisha and has parental property there. Panigrahi draws a monthly salary of Rs 30,000, and after regular expenses, he is left with a meagre investible surplus of only Rs 1,450. Given the low income, he has been unable to save or invest well and, hence, has a net worth that is currently in the negative. This is because he has taken a personal loan of Rs 2 lakh at a high interest rate, which he is currently repaying through an EMI of Rs 11,000. There are other flaws in his portfolio, including a 100% debt investment, low prioritisation of goals, no contigency corpus, and no risk coverage. In many ways, Panigrahi is ignorant about the basics of finance, which is why he has made the right decision in approaching a professional to seek direction.
Though he insists that retirement is the only goal he wants to work towards, Azeez has correctly pointed out the need to repay his personal loan and be prepared for other crucial goals. These include building a contingency corpus, saving for his future child's education and wedding, and building a house. Says Panigrahi: "I plan to get married by next year and need guidance to put my finances in order." To help him do so, Azeez begins by assessing his insurance needs.
Insurance portfolio
Panigrahi currently has only one traditional insurance policy, a money-back plan bought two years ago. This provides him with a cover of Rs 2 lakh and he is paying an annual premium of Rs 12,600. Azeez recommends that he convert it into a paid-up plan after a year since the returns are unlikely to beat inflation in the long term. Instead, he should buy an online term plan of Rs 1 crore, which will cost him Rs 10,000 annually. Panigrahi also has no health insurance and should consider buying a family floater plan worth Rs 3 lakh, which will cost Rs 6,760 a year. This means the total annual premium will be Rs 1,396 and the additional cost of insurance after discontinuing the moneyback plan will be Rs 346 a month. This can be funded from his surplus.
Ideally, Panigrahi should consider buying a personal accident disability cover as well as a critical illness plan, but since he doesn't have sufficient surplus, he should do it as soon as there is a rise in income.
Road map for the future
Before planning for his goals, Panigrahi should try to prepay his expensive personal loan if it does not incur any prepayment penalty. He should have his loan EMI raised to Rs 13,000 and prepay it in one-and-a-half years. He is advised to stop further investment in the recurring deposit, which will raise his surplus to Rs 3,104 after taking into account the additional insurance cost. This means he can start investing for his other goals only after this period, when he will have a surplus of Rs 17,000, including the rise in income.
To begin with, he should build an emergency corpus equal to three months' expenses, which will amount to Rs 85,650. To do this, he can allocate his cash holding of Rs 5,000 and recurring deposit of Rs 75,000, which should suffice for now.
Panigrahi is also planning to get married next year, but is unlikely to incur any cost since his parents will be funding the event. The other goals he wants to save for are his child's education and retirement. For the child, likely after a couple of years, he has estimated a need of Rs 35 lakh in a period of 18 years. Since he will start investing for the goal after 1.5 years, he will have to start an SIP of Rs 4,600 in an equity mutual fund to build the required corpus. This is assuming an annual return of 12% from equity funds.
As for his retirement, he has estimated a requirement of nearly Rs 7 crore by the time he retires at 60. Though Panigrahi wanted to quit working at 45, this will not be feasible given his low income and inability to save adequately for his goals. Hence, he is advised to continue working till 60. To reach the goal, he can allocate his EPF sum, which is likely to yield Rs 1.6 crore in 28 years. He can also allocate the maturity value of his insurance policy towards this goal. For the remaining amount he will have to start an SIP of Rs 20,000 in an equity fund to generate the corpus. However, since he won't have sufficient funds, he can start with whatever sum is available to him.
As for buying a house, he doesn't have enough money to do so now and can rely on his parental property to fund the goal later. He should also review his financial situation after two years, when he is married and has repaid the loan. If his spouse is earning, it will help ease the financial pressure. Any rise in income can then be directed towards retirement or other goals. If his wife is not employed, any rise in income will go towards the increased living expenses. Hence, he should assess the situation after a couple of years and take the required steps.
Financial plan by Feroze Azeez, Executive Director, Investment Products, Anand Rathi Private Wealth Management.
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Kumars need to increase their equity exposure, cover their risks adequately
, ET Bureau|
15 Jun, 2015, 08.00AM IST
Most people are blind investors. They don't work to a plan, never link investments to financial goals and put in money randomly in any avenue that takes their fancy. Among the many drawbacks of this trait is that one never knows if the goal is within reach or if one is making the money work as hard as it can.
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.
Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.
Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
Much like the average Indian investor, Chennai-based Veerendra Kumar has made this mistake. Despite saving and investing diligently for years, he doesn't know how and, whether, he will meet his goals. So approaching a financial adviser is a good step to take a reality check and execute course corrections, if required. To assist him in this endeavour is financial planner Pankaaj Maalde, who will define the course and prepare a plan for the Kumars.
Existing financial status
Kumar is 34 years old and stays in Chennai with his homemaker wife Sujana, 31, and two children, aged five and one. Among his other financial dependants are his parents, who are 61 and 58 years old, and his brother. Kumar brings in a monthly salary of Rs 85,000 and his financial outgo is Rs 70,100, leaving him with a surplus of Rs 14,900 each month. Kumar spends Rs 28,000 on household expenses and Rs 10,000 on house rent, while Rs 7,000 goes for kids' education, Rs 16,700 as premium for insurance policies and Rs 8,400 as EMI for the car loan he has taken.
As for Kumar's financial portfolio, he has split it almost evenly between debt (48%) and real estate (46%), with a minuscule 6% in equity. If he wants to achieve his goals, he will need to increase his equity exposure and reduce real estate. The goals are simple enough: build an emergency corpus, construct a house, save for children's education and weddings, and plan for retirement. Before Maalde formulates a plan for them, he will assess their insurance portfolio and suggest changes, if required.Insurance portfolio
Kumar has three traditional plans and two Ulips, but these offer a low cover at a high premium. Kumar has paid all the premiums for the first plan, but he is advised to surrender the second one and can continue with the third one as it is likely to give returns that can beat inflation in the future. As for the Ulips, he is advised to surrender one and stop paying the premium for the other one. However, since he doesn't have sufficient life insurance, he should buy a term plan of Rs 1.25 crore for 25 years, which will cost him Rs 12,000 per year.
As for health insurance, Kumar is currently relying only on the cover provided by his employer. Hence, he should buy a family floater plan worth `10 lakh, which will result in an annual premium of Rs 20,000. He has, however, taken the right decision about purchasing a medical plan for his parents and should continue with it. Kumar should also consider buying a personal accident disability cover of Rs 50 lakh as well as a critical illness plan of the same amount. These will cost him an additional Rs 18,000 a year.
Despite purchasing fresh covers, Kumar's premium outgo will reduce by Rs 5,667,
which will help increase the investible surplus to Rs 20,567 a month.
| |
Road map for the future
Now, Kumar can start planning for his goals, the first of which is building a contingency corpus equal to six months of his expenses. This amounts to Rs 3.86 lakh and can be sourced from his existing resources. He can deploy his cash of Rs 50,000, fixed deposit of Rs 1 lakh, and debt investment of Rs 2.25 lakh. These will amount to Rs 3.75 lakh and will suffice as an emergency corpus.
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Next, Kumar wants to build a house on one of his plots of land in a year's time. This will cost him Rs 10 lakh and he can get the funds by selling his second plot worth Rs 6 lakh and using his fixed deposit of Rs 4 lakh. He doesn't need to make any fresh
investments for this goal.
Kumar also wants to plan for the education expenses of his children in 13 and 17 years. For his son's higher studies, he has estimated a need of Rs 41 lakh, and to meet this goal, he will have to start an SIP of Rs 10,000 in an equity mutual fund. Similarly, for his daughter, he wants to amass Rs 56 lakh and will again have to start an SIP of Rs 7,500 in an equity fund. This will help him accumulate the desired amount in the specified period.Retirement is another important goal for Kumar, and for this he wants to acquire Rs 7 crore in 26 years to be able to maintain his current lifestyle. To be able to meet this, he will have to assign his EPF savings worth Rs 7.32 lakh, stocks (Rs 56,000), debt investment of Rs 1.6 lakh, surrender value of Ulip and the maturity value of two of his insurance policies. Combinedly, these are likely to yield Rs 4.95 crore in the given time. To make up for the shortfall, he will have to start an SIP of Rs 8,500 in a diversified equity plan. However, since he will be left with a surplus of only Rs 3,000 after investing for other goals, he can start with this amount and increase it next year when he shifts into his own house and stops paying the rent of Rs 10,000.
Kumar also wants to save for his children's weddings when they turn 25 and has estimated that he will require Rs 47 lakh for his son and Rs 63 lakh for his daughter. To achieve these goals, he will need to invest Rs 4,000 and Rs 3,500, respectively, in equity funds through SIPs. However, since he doesn't have the required surplus now, he will have to put these off till next year, when he saves on rent and gets a salary increment.
(Financial plan by Pankaaj Maalde, Certified Financial Planner)
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Mahesh Macwan needs to optimise returns with higher equity exposure
ET Bureau|
8 Jun, 2015, 08.19AM IST
Mahesh Macwan is 43 and his portfolio is rife with mistakes. His net worth is low at Rs 22.34 lakh, as is his income; he has a negligible equity exposure; has a very high debt holding and excess liquidity (Rs 6 lakh in bank account); and his risk coverage is not adequate.
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement. Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.
The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
Macwan's portfolio comprises nearly 70% in debt in the form of fixed deposits, EPF and PPF, while 27% is held as cash, resulting in a meagre 2% in equity and 1% in gold. Given the fact that he has not employed the growth potential of equity investments in his earlier years, he may not be able to save sufficiently for his retirement.
Yet, he will not have much of a problem with his other goals and securing his investments with adequate insurance. For this, he will have to alter his investment pattern and make his money work harder, as well as align his investments with goals.The financial planning team at Principal Retirement Advisors will help him do this by preparing a plan for him. Existing financial status Macwan is single and lives at Bharuch in Gujarat.
He is employed as an executive assistant in a multinational company. He brings in a monthly salary of Rs 35,300, but his expenses are low because his company subsidises most big-ticket expenditures like food and lodging. This means that he pays a nominal rent of Rs 2,000 for his accommodation and his household expenses run up to only Rs 5,000 a month.
He, along with his brother, also shares the financial responsibility for his mother, who stays at Karamsad, in Anand.
Besides these expenses, Macwan pays a premium of nearly Rs 3,000 a month for his insurance policies. After accounting for this outgo, Macwan is left with Rs 25,300 a month. This can be used to partly achieve his goals. These include setting up an emergency corpus, purchasing a house and saving for his retirement in about 17 years.
Before the Principal Retirement Advisors team charts out a course for him, it will analyse his insurance porfolio and needs.
Insurance portfolio:
Macwan currently has two life insurance policies from LIC, which cover him for Rs 5 lakh, a medical insurance plan worth Rs 1.5 lakh, and a personal accident cover of Rs 3 lakh.
He is provided life, health and accident covers by his company. However, these are inadequate and he will need to buy more cover to secure his investments.
The Principal team suggests that he buy a term plan of Rs 30 lakh, which will cost him Rs 6,475. Besides this, he needs to buy a topup medical plan worth Rs 10 lakh and a critical illness cover of Rs 15 lakh, which will result in a premium cost of Rs 5,208 and Rs 16,971, respectively.
He should also consider a peRs onal accident cover of Rs 50 lakh, which will cost him only Rs 5,730. Besides this risk cover, he also needs to provide a buffer for his mother's medical needs. So he should purchase a health insurance of Rs 5 lakh for her, which will result in a premium of Rs 31,000, given her age. All these additional insurance policies will result in a monthly premium of Rs 5,450.
Macwan is also advised to continue with his two LIC policies, which can serve as the debt component of his portfolio and can be allocated to the goal of retirement.
Road map for the future:
After taking care of his and his mother's insurance needs, Macwan can start planning for his other goals. The first of these is building an emergency corpus, to take care of any exigencies. He can form a corpus that is equal to four months' expenses and amount to Rs 61,000.
This can be easily culled from the high cash holding of Rs 6 lakh in his savings account.
Next, Macwan wants to purchase a house worth Rs 25 lakh in about seven months. To achieve this goal, he can fund it partly (Rs 15.43 lakh) by dipping into his existing resources. He can allocate his fixed deposit of Rs 10 lakh and the remaining cash holding after building the emergency corpus. This will amount to Rs 15.14 lakh.
To make up for the shortfall, he can start an SIP of Rs 4,550 in a balanced fund. For the remaining amount, he can take a loan of Rs 10.29 lakh for 10 years , which will result in an EMI of Rs 13,596 at 10% rate of interest. This can be easily sourced from his investible surplus.
Finally, Macwan is left with his goal of retirement in nearly 17 yeaRs . Considering his current lifestyle and expenses, Macwan will require a retirement corpus of Rs 2.66 crore.
He can again fall back on his existing resources of EPF and PPF (Rs 5.57 lakh), gold (Rs 25,000), stocks (Rs 52,092) and maturity value of two insurance policies.
After combining all these investments, he is likely to accumulate a corpus of Rs 46.66 lakh in the specified period. For the remaining amount of Rs 2.19 crore, he will need to start investing in equity mutual funds through a monthly SIP of Rs 47,660.
However, Macwan will not have sufficient investible surplus to be able to do so since he will be left with only about 9,254 after starting the home loan EMI after seven months and after accounting for the additional insurance cost of Rs 2,450. Therefore, he can start investing the amount that he is left with and direct any increase in income towards his retirement goal.
He can also review his financial situation after a few years and either find ways to supplement his income through alternate avenues of employment after retirement, cut down his expenses, or put up his house for reverse mortgage.Financial planning by Principal Retirement Advisors.
Financial planning by Principal Retirement Advisors
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How smart savings and high earnings will help Bals to meet their goals
1 Jun, 2015, 07.36AM IST
By Fincart
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
They have invested heavily in real estate, which has an 80% holding in their portfolio. While they are living in their family house worth Rs 50 lakh, they also have a plot of land worth Rs 11 lakh and two properties worth Rs 35 lakh and Rs 76 lakh. For these, they have taken three loans of Rs 63.74 lakh. They are currently paying EMIs of Rs 22,000 for two loans, but one of these is scheduled to end in March next year, while the EMI of Rs 49,000 for the third one will start in February 2016.
They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
Insurance portfolio
The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
Finally, the couple wants to plan for their retirement, which is 31 years away. For this, they will require Rs 7.1 crore in keeping with their current lifestyle and expenses. To achieve this goal, they can allocate their EPF and PPF savings, which are likely to fetch Rs 5.08 crore. For the shortfall, they will have to start investing in an equity mutual fund through an SIP of Rs 5,953. This will help create the required kitty.
As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
An early start to planning can be a good preventive for most financial ills. Not only can one save aggressively during this period because of fewer responsibilities, but most investing mistakes can be rectified over the long period of achieving goals. This is probably the reason why Thane-based Bals are likely to meet their goals despite several flaws in their portfolio. The 29-year-old couple has a creditable net worth of Rs 1.39 crore, a high income and a good savings ratio. So, despite going overboard on real estate, and not taking any equity exposure or securing their risks adequately, they shall be able to ensure a smooth financial journey for themselves. The financial planning team of Fincart will help them in this task.
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Existing financial status
Supriya is 29 and lives with her husband, Saurabh, who is also 29, and their six-monthold son, Mihir, in Thane. Both husband and wife are in private service and together bring in a monthly income of Rs 1.55 lakh. Their total expenses are worth Rs 52,583, which means they have an existing investible surplus of Rs 1.02 lakh. The family's financial outgo includes household expenses of Rs 27,000, insurance premium of Rs 3,583 and loan EMIs of Rs 22,000.
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They have the standard set of goals, which include building a contingency corpus, buying a car, paying the stamp duty and possession amount for their house, saving for their son's education and wedding, and for their own retirement. Given the high surplus, they should not have a problem saving for their goals, but need to align their investments with these. To begin with, the Fincart team considers their insurance needs.
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The Bals have not been very watchful about buying independent life and health insurance since they are covered by their companies They do have two independent plans which offer a low cover at a high premium. Hence, the couple needs to buy more insurance. While Saurabh is advised to purchase a term plan of Rs 1 crore, Supriya should buy a Rs 1.5 crore cover. Both these policies will cost Rs 1,910 a month.
As for health insurance, they should pick a Rs 3 lakh family floater plan and a top-up plan of Rs 15 lakh with a Rs 5 lakh deductible, which will cost Rs 924. This means that the family will not bear any additional premium cost. The Bals are also advised to surrender both their existing insurance plans, which will not only free up the premium but also result in a surrender value of Rs 2.36 lakh that can be invested for their goals.
Road map for the future
Now, the Bals can start planning for their goals, the first being the setting up of an emergency corpus. Considering their six months' expenses, they will need Rs 5.22 lakh. To build this, they can use their existing resources, including Rs 48,000 cash in their bank account, Rs 1.59 lakh of their fixed deposit, and Rs 3.15 lakh worth of stocks. Since they are not well-versed in stock investing, they are advised to sell their shares after six months to avoid capital gains and keep the money in a liquid fund.
Next, the couple needs Rs 3.75 lakh for stamp duty and registration charges for the house they are buying. This can be easily sourced from their fixed deposit. They also require Rs 3.1 lakh in 14 months while taking possession of their new house. For this, they can allocate the insurance surrender value of Rs 2.36 lakh and invest it in an arbitrage fund. For the remaining amount, they can start an SIP of Rs 3,391 in an arbitrage fund for the given period. This will help them accumulate the required amount.
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Next, the Bals want to buy a car worth Rs 7 lakh in one-and-a-half years. To achieve this goal, they can allocate the remaining amount of Rs 1.16 lakh in the fixed deposit, which is likely to yield 1.31 lakh in the specified period. For the balance amount, they can start an SIP of Rs 30,098 in an arbitrage fund, and it will fetch the required funds for the goal.
The Bals also want to plan for their son's education and wedding. They have estimated a need of Rs 1 crore for Mihir's studies in 18 years, and Rs 82.18 lakh for his wedding in 25 years. To meet these goals, they will have to start SIPs of Rs 14,036 and Rs 4,828, respectively, in equity funds. They can also allocate their gold holding worth nearly Rs 10 lakh for the child's wedding.
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As for the home loan EMI of Rs 49,000 that begins in February next year, they can utilise the existing surplus of Rs 42,945, and the balance from the EMI of Rs 11,000 that they will save from March 2016 when the home loan closes. Their saving will also rise after buying the car and this surplus amount can either be used for other goals or as per their requirement at the given time.
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Rangacharis are unlikely to face any challenges due to savvy investments
ET Bureau|
25 May, 2015, 07.46AM IST
By Pankaaj Maalde
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two childrenâ€"Sreeram, 10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.
Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
A conscientious investor may not necessarily be prudent because aggressive investments don't always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolioâ€" 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
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Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children's education, and Rs 22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.
Maalde will analyse these investments and suggest changes to meet the goals. The family's targets include building a contingency corpus, saving for their children's education and wedding, and for their own retirement. Maalde begins by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.
He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn't earn, she doesn't require any life insurance.
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As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn't need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.
He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.
He needs to build an emergency corpus equal to six months' expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.
Now Rangachari can start planning for the other goals, starting with his children's education. For his son's education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.
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Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter's higher studies, Rangachari wants Rs 25 lakh in 12 years.
To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.
Next are the goals of his children's wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.
Maalde has not assigned any existing resource for these goals.
To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.
This should ensure the amassing of required amount in the specified period.
Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.
For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.
For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.
These will help him amass the required amount in 19 years.
As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner
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Why the Fules will have to realign their investments despite high savings
18 May, 2015, 08.00AM IST
Despite high savings, the large number of goals means that the Fules will have to defer a couple till a rise in income and realign their investments to targets to ensure a smoother ride.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.
Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Jitendra Fule is an avid saver and investor. Yet, he may have to defer or downscale some of his goals because he has failed to match his ambitions to the available surplus. This is the reason financial advisers insist on aligning oneRs s investments with the goals, instead of blindly putting in money in varied instruments, even if they are appropriate. Unless you are aware how much money is required for a particular goal, you cannot know if you can achieve it. It's to seek such clarity and future course of action that the Mumbai-based engineer has approached us for advice. The financial planning team at Fincart will do just that so that the Fules can achieve most of their goals with relative ease.
Existing financial status
Jitendra Fule is 40 and lives with his 31-year old wife Sapana, and five-year-old daughter Savi, in Mumbai. While Sapana is a homemaker, Jitendra works as an executive engineer in a PSU firm. He brings in a monthly salary of Rs 62,000 and saves on house rent because he has been provided government accommodation. However, he has bought a plot of land worth Rs 16 lakh. With a net worth of Rs 59.12 lakh, his portfolio comprises 27% in real estate, 42% in debt, 27% in equity, and the remaining in gold and cash. Fule has prudently invested in equity through SIPs in mutual funds, while most of the debt holding is in the form of EPF and PPF.
As for his financial outgo, Rs 25,000 is allocated to household expenses, Rs 1,299 goes as insurance premium, while Rs 8,333 is the education expense for his daughter. This leaves him with Rs 27,368, of which Rs 18,500 is invested in the PPF and mutual funds via SIPs. The surplus amount at the end of each month is Rs 8,868, which, along with the existing investments, needs to be deployed fruitfully to achieve all the goals.
The Fules' financial targets include saving for their daughterRs s education and marriage, apart from their own retirement. Besides these crucial goals, they want to build an emergency corpus, buy a car, go on a vacation and purchase a house. Before the Fincart team charts a course for them, it will analyse their insurance needs.Insurance portfolio
Fule currently has a term plan of Rs 15 lakh, a group insurance worth Rs 15 lakh and an employer cover of Rs 20 lakh. He is advised to surrender the first policy and buy an online term plan of Rs 1 crore for 20 years, which will cost him Rs 15,496 per annum. Since Sapana is not earning, she doesnt need to be insured.
As for health insurance, Fule is covered under the government medical insurance scheme and has another independent family floater policy worth Rs 3 lakh. He is advised to surrender this, but still doesn't require any more insurance. As for the premium for the additional life insurance, it can be paid by the premium he saves after surrendering the existing LIC term plan.
Road map for the future
The Fules need to have an emergency corpus of Rs 2 lakh, which is equal to their six months Rs expenses. To meet this goal, they can assign Rs 50,000 cash in their bank, Rs 30,000 fixed deposit and the fund value of nearly Rs 1 lakh from one of their mutual funds. They will face a deficit of Rs 13,000 but this can be built in six months with their surplus amount.
After this, they can start planning for their other goals, which include saving for their daughter Rs s education and wedding. For the former, they will require Rs 54.39 lakh in 13 years. Fule is advised to increase the SIP amount from Rs 3,000 to Rs 4,892 in one of the funds. After a year, he should also reallocate the sum of Rs 5.6 lakh from an existing fund to the new one.
For the wedding expenses estimate of Rs 23.3 lakh in 20 years, the family will need to allocate their gold ETF fund value to this goal, which is likely to yield Rs 8.17 lakh in the given period. To furnish the remaining amount, Fule will have to start an SIP of Rs 771 in an equity fund.The next important goal for the family is retirement, for which they have estimated a need of Rs 2.38 crore in 18 years to maintain their existing lifestyle. To achieve this, the Fincart team has allocated their EPF value of Rs 18.6 lakh, PPF amount of Rs 3 lakh, stock value of Rs 50,000 and one of the mutual funds worth Rs 2.5 lakh. Combinedly, these are likely to fetch Rs 2.2 crore in the specified period. To make up for the shortfall, Fule will have to start an SIP of Rs 1,253 in an equity fund to muster the required amount.
Another preferred goal for the Fules is a vacation in two years, which has been long overdue and a priority for them. For this, they will need Rs 4.6 lakh and are advised to start an SIP of Rs 17,837 in an arbitrage fund for two years. The family also wants to buy a car worth Rs 6 lakh in two years, but since this will require an investment of nearly Rs 23,000 a month, they are advised to defer this goal till a rise in income.
The family has another goalâ€"of buying a house worth Rs 1.5 crore in two years. However, it is impossible for them to meet this goal given their current financial status and surplus. So, they are advised to scale down the goal value to Rs 70 lakh. They can then make a down payment of Rs 30 lakh. For this, they can allocate their plot of land and two of their mutual fund values, which will yield the amount in the given period. For the remaining amount of Rs 40 lakh, they will have to take a home loan at the rate of 10% for 18 years, for which the EMI will come to Rs 40,000. This is a huge amount and is contingent on the rise in income as well as the implementation of the Seventh Pay Commission. They will also free up Rs 17,837 after two years, when their vacation goal is over, and can redirect this amount to the house. If, however, the Pay Commission revision does not fructify, they will have to review their options and formulate a fresh plan with lower goal value at that point of time.
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Getting rid of high debt can help Varmas reach their financial goals
ET Bureau|
11 May, 2015, 08.00AM IST
A heavily skewed portfolio and expensive loans have the potential to neutralise all the positives in an investor's portfolio. Hyderabad-based Varmas have done just that. They have three loans that they are currently repaying, as well as a portfolio that has 78% real estate.
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
Yet, the fact that they are keen to get their finances on track and have sought professional advice will help them rectify the flaws and set them on the right course. Financial adviser Pankaaj Maalde will help them do this by overhauling their loan and insurance baskets and preparing a plan that will serve as a guideline for the future.
Existing financial status
Surya Varma is 35 and lives with his 30-yearold wife Swarna, five-year-old daughter Ruthika and 52-year-old mother, in Hyderabad.
Both of them are employed and bring in a combined monthly salary of Rs 99,000, with Surya earning Rs 64,000 and Swarna getting Rs 35,000. Combined with a rental of Rs 6,500 from one of their flats, the total income comes to Rs 1.05 lakh. The Varmas have two houses and two plots of land which are combinedly worth Rs 35 lakh.
As for their monthly outgo, household expenses account for Rs 15,000, while Rs 10,000 is paid as rent. Another Rs 10,500 goes for Ruthika's education and Rs 5,333 as insurance premium. A big drain on their income is Rs 35,200 that is paid as EMIs for the three loansâ€"one for car and two personalâ€" that they have taken. After accounting for all these, they are left with a surplus of Rs 29,467, which needs to be used judiciously to reach all their goals. The financial targets include building a contingency corpus, constructing a house, saving money for their daughter's education and wedding, as well as for their own retirement.
To be able to achieve all these goals, the Varmas require a much larger investible surplus and Maalde suggests that they revamp their loan and insurance portfolios. He begins by assessing their insurance needs.
Insurance portfolio
Surya currently has one traditional plan and two Ulips, which cover him for a measly Rs 7 lakh. Maalde suggests that he surrender all three since they don't promise good returns, and it will result in a surrender value of Rs 3 lakh. Since the couple has inadequate life insurance, Surya is advised to buy an online term plan worth Rs 50 lakh and Swarna a term plan of Rs 25 lakh, both of which will result in an annual premium of Rs 11,000.
As for health insurance, Surya has a cover provided by his employer, but this is not enough and he should buy a family floater plan worth Rs 10 lakh for the family. He should also purchase a Rs 3 lakh cover for his mother.
These will cost him Rs 28,000 per annum. Besides these, Surya should also consider buying Rs 25 lakh accident disability and Rs 25 lakh critical illness plans, which will cost around Rs 12,000 a year. Combinedly, all the new plans will result in a monthly premium of Rs 4,250 which means they don't have to bear any additional cost after surrendering the earlier policies.
Road map for the future
Before preparing a plan to achieve the goals, Maalde suggests that the Varmas repay all their expensive loans to free up a sum of Rs 35,200, which is currently going as EMIs.
This will increase the investible surplus to Rs 59,250, including Rs 1,083 that they save on insurance premium. They can close the loans by selling one of their flats, which is worth Rs 15 lakh, as it will take care of all three loans, the outstanding amounts for which are Rs 3.1 lakh, Rs 3.25 lakh, and Rs 6.25 lakh. After this, the Varmas can start planning for their goals.
To begin with, the Varmas need a contingency corpus of Rs 2.4 lakh, which is equal to their six months' expenses. This can be easily sourced from the remaining proceeds of the flat's sale. Besides this, they can also allocate Rs 30,000 that the couple has as cash in their bank. After this, they can move on to the next goal of constructing a house in five To ensure a smooth financial ride, the Varmas must quickly repay their costly personal loans as also correct the skew towards real estate in their overall investment portfolio.
years on one of their plots of land. This will cost them Rs 64.5 lakh and they want to create a corpus of Rs 30 lakh in the given period. To do this, Maalde suggests they allocate their other plot and the surrender value of Ulips.
The latter should be invested in balanced mutual funds. Additionally, they will need to start an SIP of Rs 25,000 in a balanced fund to be able to amass Rs 30 lakh. For the remaining Rs 34.5 lakh, they will have to take a loan, which will result in an EMI of Rs 33,300 at an interest rate of 10%. This can be sourced from the surplus of Rs 25,000 and the Rs 10,000 they save on rent.
Next, they want to save for the education and wedding of their daughter. For the former, they have estimated a need of Rs 27 lakh in 13 years. For this, no existing resource has been allocated and they will have to start an SIP of Rs 7,000 in an equity fund. For the goal of Ruthika's wedding, the couple has calculated an amount of Rs 93 lakh in about 20 years. Again, no existing resource has been assigned and they will need to start SIPs of Rs 7,000 and Rs 3,000 in an equity and gold fund, respectively, to be able to collect the required amount.
Finally, they are left with the most important goal of retirement, for which they will require Rs 4.7 crore in 25 years from now. This kitty should help them sustain their current lifestyle till the time Swarna is 80 years old.
To be able to build this corpus, and taking into account an inflation of 8%, the couple will have to allocate their EPF amount, which is likely to yield Rs 85 lakh in the specified period. However, they will also need to start an SIP of Rs 17,000 in an equity mutual fund to be able to amass the given sum. Any rise in income in the future can be used for the existing goals or any other requirement according to their priority.
Financial Plan by Pankaaj Maalde, Certified Financial Planner
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Don’t get lured by discounted offers on car insurance; Here's why you need to be cautious
13 Aug, 2015, 06.40PM IST
By Neha Pandey Deoras, ET Bureau
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
Our instinct to get the maximum bang from the buck is particularly visible when it comes to buying car insurance, because if one does not make a claim, one does not get any value for the premium paid. By negotiating a policy with a lower premium, one can cut losses. Fortunately, discounts on motor insurance are easy to come by. According to industry officials, in addition to the no claim bonus (NCB), one can get 50-60% discount on the basic vehicle premium.
Naturally, we negotiate hard. However, motor insurance buyers need to be cautious, particularly when the insurer agrees to the discount you are seeking. "Misselling of the insurance product and miscommunication about it are most likely to happen when you are given huge discounts," says Yashish Dahiya of policybazaar.com.
Has your car's value been lowered?
Misselling happens when you buy a policy via an insurance agent. "If you negotiate hard with an agent, he may lower the value of your car, hence lower your insured declared value (IDV)," says Deepak Yohannan of MyInsuranceclub.com. Say your car is valued at Rs 7 lakh and you are asked to pay a premium of Rs 22,000. If you push for a bargain, the agent might value your car at Rs 6.50 lakh, thus bringing your premium down by some Rs 2,000. Unfortunately, you will discover this only when you make a claim, and get a low payout. "At the time of the claim, you will get a lower amount as your car was given a lesser cover (in accordance with the IDV) when it was insured," explains Yohannan. Do check with your agent about your car's IDV.
Has voluntary deductible been increased?
When monetary loss is borne by the insured, it is called deductible. It can be compulsory or voluntary. For a policy where a car's IDV is around Rs 6.50 lakh and an insurer offers a lower premium of Rs 18,930, you are also offered a voluntary deductible component of around Rs 5,000. If you increase the voluntary deductible component to, say, Rs 7,500, the premium gets lowered to Rs 18,480. If you increase it to Rs 15,000 your premium could fall to Rs 18,000.
Often agents lower the premium quote by increasing the voluntary deductible. When a loss occurs, you have to cough up a good amountâ€"voluntary and compulsory deductibleâ€" from your pocket.
Incorrect claim history?
If you want to shift to another insurer, and you do not disclose that you had made a claim with your previous insurer, you may get a discounted premium from your new insurer. The problem arises when you make a claim with your new insurer.
The company will contact your previous insurer to verify your claim history. "If nondisclosure or misrepresentation on the part of a policyholder is found out at the time of a claim, the insurance company has the right to reject the claim," says Dahiya. While agents are quick to suggest such tricks to policy buyersâ€"who often agreeâ€"it is the buyer who suffers when his claim gets rejected.
Have add-on covers been removed?
"At times, premiums are lowered after removing add-on covers from the base policy," says Divya Gandhi, Head, General Insurance and Principal Officer, Emkay Insurance Brokers. So, first the agent will show a quote with the cost of add-on covers factored in.
And when you bargain, the agent will remove the cost of add-on covers to offer a lower quote. "A typical third-party motor policy has in-built covers for drivers and copassengers.
These are detachable, and so often people choose not to take these covers in order to lower the premium payout," says Sanjay Datta, Chief Underwriting and Claims, ICICI Lombard General Insurance. Add-on cover can be important, don't get swayed by the lower premium.
Standard cover pitched as special offer?
Often agents sell a policy by bloating its price and then offering you a 20-30% discount on the premium and project it as a special deal for you. Or, they include an add-on cover and say that despite an additional benefitthey have been able to keep the premium unchanged.And even though the premium would have increased, you would not know the premium stripped of the add-on covers. So, if you can do a little research of your own before you buy the policy, it will be helpful.
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Quality of services and past experience driving purchase behavior of customers: Sanjay Datta, ICICI Lombard GIC
12 Aug, 2015, 03.42PM IST
Customers today see a lot of value in insurance products which not only provide financial cover for their risks but also put forward solutions to reduce those risks, says Sanjay Datta, Chief, Underwriting, Reinsurance & Claim, ICICI Lombard GIC Ltd. In an exclusive interview with Sanjeev Sinha, Datta shares his views on the impact of the economic slowdown on India's general insurance industry and talks about changing customer behavior and preferences. He also discusses his business outlook. Excerpts:
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
What has been the impact of the economic slowdown on India's general insurance industry? How is the industry coping with it?
The general insurance industry did witness some impact of the economic slowdown as growth slowed to single digits in FY 2015. However, the recent quarter has seen a revival with growth returning to the double digit trajectory. Given the low penetration across segments, including health, home etc, the industry is set to maintain a robust growth rate as awareness and realization of the need for risk mitigation increases amongst India's aspiring and young population.
The industry is also said to be burdened with widening underwriting losses because of the claim ratios being well above international benchmarks. Your comments ?
Insurance requires a healthy mix of customers to avoid problems of anti-selection. With the current levels of penetration, the industry is facing an underwriting loss issue. However, as demand grows, one would see companies being able to build larger risk pools which would be able to serve the needs of the overall pool in an effective manner.
Despite times being turbulent, retail lines have seen strong growth in the recent past. What are the reasons?
The Indian general insurance industry has evolved beyond merely offering financial protection against risks to life and personal assets. Today, it plays a far more comprehensive role of managing risks through preventive and pro-active measures. For example, a health insurance cover is not limited to hospitalisation expenses. It offers a host of value added services like free health check-ups, wellness programs, consultation with doctors, OPD etc. Similarly, various additional services and solutions are also offered with other general insurance products like motor and travel insurance. Customers today see a lot of value in those products which not only provide financial cover for their risks, but also put forward solutions to reduce those risks. Along with this, awareness drives and increased tax incentives provided by the government have given a fillip to the overall purchase of insurance through retail lines.
Have you also noticed any changes in the customer behavior and preferences?
Today's customers are more perceptive and aware of their needs. They are not persuaded by the age-old product-driven attitude of companies. Be it fast-moving consumer goods, electronic equipment or financial services, customers today look for an integrated approach in all products they intend to purchase. When it comes to general insurance products, quality of services and past experience - specifically in the area of claim settlement - have emerged as the two most critical factors driving purchase behavior of today's customers.
Has your company come out with any new product in recent times to meet the changing customer requirement?
Risk faced by every individual is different. A customer today prefers customised options catering to his or her distinctive requirements. Keeping the unique needs in mind, ICICI Lombard has already developed a comprehensive basket of risk insurance products that can be customised to the requirements of customers. ICICI Lombard's complete health insurance plans offer a range of sum insured and add-on covers which can be added to a basic health insurance policy to tailor it to the specific needs of a customer. Similarly, a customer can choose from a host of travel insurance plans provided by the company which suit his or her travel requirements. We also provide a lot of add-on covers, such as a road side assistance cover in motor insurance, to reach out to the customer in his/her moment of need.
Insurers these days are fast increasing their online presence. What are the reasons? Is this move also going to benefit customers going ahead?
In a rapidly-changing world, customers require instant solutions. They look for products where the delivery of benefits is fast, convenient and consistent from end to end. Given the fast rate of adoption of the online medium and its capabilities, insurers are focusing on strengthening their online presence to reach out to and service customers faster. This cost-effective platform is in fact being harnessed for multiple stakeholders, including customers, agents and employees.
For customers as well it is a win-win situation since they can cover themselves against various risks on the go and at the click of a button. Insurers have ensured that the online facility is available across devices, including PCs, mobiles and tablets. For example, ICICI Lombard offers a mobile app (Insure) to enable customers to purchase/renew their health/ travel/ motor insurance policy, intimate and track claims, locate the nearest garage/ hospital etc.
How do you see the future of the general insurance industry in India?
The Indian general insurance industry has witnessed GDPI (Gross Direct Premium Income) growth at a CAGR of 17.5% in the last 5 years. While it continues to grow at this robust pace, low penetration levels offer enormous opportunity and scope to expand. To augment further development of the industry and increase customer interest, the regulator has been facilitating introduction of new segments such as long duration products as well as introducing customer-oriented regulations. FDI relaxation is another positive step by the government to help the insurance industry increase penetration and strengthen capabilities to bring more people under the umbrella of insurance.
What are your plans to beat the growing competition?
The general insurance sector in India is still at a nascent stage. There is immense scope to grow in this hugely under-penetrated market. To tread the growth path, ICICI Lombard has been focusing on better understanding customer needs and thereby offering innovative services and solution-oriented products. The company also believes that simplification of the product delivery and distribution model is important to reach out to customers and increase product penetration.
ICICI Lombard has been using technology as a business enabler to set up robust processes and thus ensure enhanced customer experience. To provide insurance solutions to more, the company has been reaching out to customers through alternate distribution channels and has intensively used analytics to improve mapping of customer needs and experiences.
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Here’s what you should know about the Sukanya Samridhhi Yojana
ET Bureau|
17 Aug, 2015, 08.43AM IST
SSY is a government-run saving scheme for the girl child. It seeks to provide them with financial security. Roopal's daughter is eligible for an SSY account. The account must be opened before the child turns 10, with a minimum investment of Rs 1,000. Thereafter, she must invest a minimum of Rs 1,000 and a maximum of Rs 1.5 lakh (deduction available u/s 80C) annually. The money in the account can be fully withdrawn only after the girl turns 21. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Roopal seems to like PPF for three thingsâ€"EEE tax benefit, long-term investment horizon and assured returns (notified by the Government of India), benchmarked to the prevailing market rates. All these benefits remain the same if she were to invest in SSY. However, this is where the similarities end. It is imperative that she is aware of the differences too before she makes a choice. While Roopal will be able to partially withdraw her PPF corpus from the seventh year, such partial withdrawals from SSY will be possible only after her daughter turns 18. Moreover, if she were to open the SSY account now, she would end up with an investment horizon that differs based on the age of the child, while the PPF would allow her to invest for 15 years, further extendable in blocks of 5 years. Having said that, there is a slight interest rate differential in favour of the SSY.
If Roopal's intention is to save and invest for a specific goal like her daughter's education and marriage and if intermittent liquidity is not a prerequisite, then she might be better off with SSY. However, she must bear in mind that as fixed income schemes, both SSY and PPF may not be able to generate very high inflation-beating returns. If she saves Rs 1.5 lakh for 14 years, the corpus would grow to approximately Rs 45 lakh by the time her daughter is 19, assuming current interest rates. However, the interest rates may go through their ups and downs. With an investment horizon as long as Roopal's, she could consider combining SSY with other investments, such as equity funds.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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Seven portfolio risks investors cannot afford to overlook
, ET Bureau|
17 Aug, 2015, 08.38AM IST
Any investment portfolio is exposed to multiple risks at any given point of time. It is essential you understand these risks before you make any major investment decisions. Sanket Dhanorkar lists seven of the risks investors cannot afford to ignore.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
Interest rate risk
Interest rate fluctuations impact the value of fixed income bearing instruments. Suppose you have invested in a security yielding 9% return for 5 years. If interest rates move up to 10% in a year, fresh securities issued at the new rate will be in demand while the value of your security will fall. Higher the tenure, higher the interest risk.
Managing this risk
Align the instrument maturity with your investment horizonâ€"shortterm bonds for up to 1 year horizon; medium-term for longer.
| |
Default risk
This arises from the possibility of nonpayment of principal and interest by the issuer of fixed income bearing instruments. Investments in company FDs, NCDs and debentures are exposed to it. However, government-backed instruments carry no default risk.
Managing the risk
Opt for AAA and AA or equivalent rated instruments which carry the lowest risk. Lower rated instruments yield higher return, but carry much higher risk.
| |
Market risk
It is the risk of undesirable changes in the value of your investment due to factors affecting the financial markets as a whole. Both stock and bond markets are exposed to this risk of rising and falling prices. This requires you to time the entry in the investment.
Managing the risk
Market risk can be mitigated by diversifying among asset classes as well as individual instruments whose movement has little correlation with each other.
| |
Reinvestment risk
This risk arises from the possibility of interest rates declining when your existing fixed income instrument matures or comes up for renewal or there is a cash flow from the instrument. In this scenario, you will have no option but to reinvest at the prevailing lower rates. Zero coupon bonds are the only fixedincome instruments to have no reinvestment risk.
Managing the risk
Taking reinvestment risk into account is critical during a softening interest rate environment. The risk can be mitigated to some extent by investing in instruments across various maturities.
| |
Inflation risk
Refers to the possibility of rate of return from investments not keeping pace with rise in prices, leading to erosion of invested capital. Relatively safe bank deposits and small savings schemes are more exposed to this risk as rising prices can eat into purchasing power of invested capital.
Managing the risk
Invest in avenues that have inherent potential to beat inflation on a sustained basis. Equity remains the best asset class.
| |
Currency risk
If your portfolio includes investments in international funds or global stocks, then it is exposed to currency risk. The fluctuations in the rupee-dollar exchange rate can impact the returns. If your investment fetches 10% return in a year in dollar terms, a 5% depreciation in the rupee in the interim will enhance the rupee-denominated return to the same extent. A 5% appreciation, on the other hand, can eat away that much.
Managing the risk
This risk can be harnessed to play on currency movements. For instance, if you believe the rupee will depreciate against the dollar over the next few years, investing in a global fund will enable you to gain from this movement.
| |
Liquidity risk
Any investment should not only be profitable but also provide liquidity. It means ready availability of money, should you require it. Liquidity risk refers to possibility of the investor not being able to convert investments into cash, or realise the value of investments when required.
Managing the risk
Keep a portion of investments in liquid avenues like MFs or bank FDs. Large-cap stocks are more readily saleable than mid- or small-caps.
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Here’s how freelancers and entrepreneurs can reduce their tax outgo
, ET Bureau|
17 Aug, 2015, 08.44AM IST
For the salaried class, it is fairly easy to file returns. There is the Form 16 to turn to. There are also clearly defined and well-known heads under which salaried employees can claim deductions. For instance, chances of missing out on deductions towards life or health insurance premium are fairly remote. However, for freelance professionals and consultants, it's a different story. To claim certain deductions, besides having to keep records of their various financial transactions, freelancers have to ensure that some relatively little-known conditions are also met. "Quite often, they tend to miss out on claiming genuine expenses because of lack of awareness of certain I-T deductions and conditions," says Varun Advani, COO, makemyreturns. com. Clearly, information is key to keeping the money in one's own pocket. Here's how freelancers and new entrepreneurs can ensure they do not miss out on deductions they are eligible for.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
OPERATIONAL EXPENSES
A freelancer, usually, can claim all expenses directly related to his or her business. The list includes rent, repairs, office supplies, monthly telephone bills, Internet bills, travel expensesâ€"both domestic and foreignâ€"meals, entertainment and all hospitality-related expenses connected with the business. Bear in mind, these have to be business-related expenses and not personal. For instance, if you are using a mobile phone or an Internet connection for both personal and business purposes, only a portion of the bill can be claimed as deduction.
"One can see the trend for a couple of months and then define a percentage of the bill which can be allocated to professional expenses," says Archit Gupta, Founder and CEO, ClearTax.in.
Similarly, in case you are living in a rented apartment and are using one of its rooms for carrying out business-related activitiesâ€" as a home officeâ€" you can show a proportional amount as business rental expense. "Even if the house belongs to your parents, you can pay them rent and show it as a business expense," says Sudhir Kaushik, CA and CFO, Taxspanner.com. For instance, if you are operating out of a room of a 4-BHK apartment that belongs to your father, you could show one-fourth of the notional rent of the property as your rental expense.
Compliance Tip
When paying in cash, make sure the amount does not exceeds Rs 20,000 per day. As per Section 40 A (3), payments above Rs 20,000, to qualify for deductions, have to be made using an account-payee cheque.
DEPRECIATING ASSETS
On capital expenses, you are allowed to charge a small depreciation every year. Capital expenditures include furniture and gadgets used to set up your office, property bought to run business, etc., where benefits from such assets are usually expected to last more than a year. The depreciation percentage and methods are laid out in the I-T Act for different type of assets, ranging from 5% to 100%. While on a car you can charge 20% depreciation every year, on electronic equipment such as laptops, you can charge up to 60% a year. In case you own the property and only a portion is being used as your office, you can still show depreciation on a percentage of the property value. "If you have taken a home loan on this property, make sure you do not claim the amount twice. Deduct the business expense portion from your interest and principal repayment claims before you show it under the capital asset depreciation column," says Kaushik.
Compliance Tip
The percentage you can charge as depreciation varies hugely, even within a particular category. For instance, for a building mainly used for residential purposes, you can charge 5-10% depreciation. However, if you have built wooden structures in the office, those can be depreciated at 100% in the first year itself. Then there are different rates for intangible assets such as patents and copyrights. It is important to recognise the block of assets correctly. If in doubt, it is best to take professional help.
PROFESSIONAL FEES
Freelancers often consult other professionals and pay them a fee. If documented, such payments can be claimed as deductions, as they qualify as business expense.
However, do not try to fool the taxman. A lot of new entrepreneurs tend to employee their relatives at key positions at higher salaries. "At times, they jack-up the salaries to claim higher deductions under business expenses. To check these cases of tax-avoidance, the I-T department says that any payment made over and above the market rate for hiring such a resource, won't be eligible for deduction," says Advani. Entrepreneurs often take services from professionals outside India. Some of them work as consultants, while others are on payrolls.
"Either the money is being paid as a fee or as salary, such an expense will be allowed for deductions only when TDS has been deducted and paid to the I-T department before filing taxes," says Advani.
Compliance Tip
If you are a professional with a turnover of more than Rs 25 lakh and are liable to get your books of accounts audited, payments such as interest, commission, royalty, etc. won't be allowed for deductions, if you have not deducted the tax at source and submitted it before filing the return.
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What the proposed changes in National Pension System mean for you
, ET Bureau|
17 Aug, 2015, 08.44AM IST
If you are an existing investor in the National Pension System (NPS) or planning to subscribe to it, you might want to consider the impact of some proposed changes to the scheme.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
However, some argue these are steps in the right direction. Pankaaj Maalde, certified financial planner, reckons the shift to active fund management will benefit investors.
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
Among a slew of reforms being considered by the Pension Fund Regulatory and Development Authority ( PFRDA), the money of private sector subscribers in the NPS may soon be allowed to be invested in IPOs of Indian companies. Active fund management may be introduced, replacing the current index-only equity investment. Will investors benefit from these changes? To what extent will the NPS investment proposition change?
A radical shift in structure
The NPS is a government promulgated scheme that allows investors to contribute regularly towards their retirement by investing in a mix of government securities, corporate bonds and index funds. At present, the maximum permissible limit for investment in equities under NPS is 50%. Also, the investments in this category are done passively by mimicking the Nifty indexâ€"considered the most stable and strong companies in the equities space. However, if the proposed changes come through, fund managers may be allowed to manage the equity corpus actively instead of merely mimicking the benchmark.
Also, the universe of investible stocks may be expanded to include companies listing on the bourses for the first time. This investment would be subject to the ceiling of 50% that is applicable for equity investment under NPS. This apart, NPS fund managers may be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of 5%, respectively, as well as private equity investments up to 3% of the corpus. These proposed changes are ostensibly to introduce a greater degree of investment flexibility for NPS subscribers.
| |
If these are implemented, it would mark a radical shift from the earlier structure of the NPS.
Experts differ over the proposed changes. Some are not convinced with the new structure. "This would involve introducing additional risk elements in the form of the fund manager," argues Manoj Nagpal, CEO, Outlook Asia Capital. "Many fund managers tend to get carried away in the IPO market." Besides, if active fund management is introduced, the fee structure of NPS is bound to go up. At present, NPS subscribers incur a fee as low as 0.01% of the scheme corpus, apart from transaction charges. Active management would require the fund house to direct more time and resources towards the scheme, necessitating a hike in the fee structure. "One cannot have the best of both worlds," says Nagpal. "Would the NPS ensure the same quality of fund management at prevailing cost? If you want a truly low cost product, then tracking a publicly traded index is the best way."
| |
"Index ETF is not the right way to invest in equities in this country. Active funds have a proven ability to beat the index," says Maalde, but adds a caveat. "It would depend on who is managing the fund." Sumit Shukla, CEO, HDFC Pension Funds, one of the current designated NPS fund managers, also supports the moves.
"Pension is about long-term investments, which require active fund management for generating superior return," he argues. He is also comfortable with NPS investing in IPOs and private equity, as the necessary due diligence and risk management will be adhered to.
Raising the investment limit in equity beyond 50%, based on the Bajpai Committee recommendations, has also been discussed.
However, it is not expected to be considered right now. The new rules could be announced within a month. Prospective subscribers should wait for the announcement and consider whether the scheme is a worthy proposition suited to their risk profile. Those who have already subscribed have no option but to live with the changes until vesting age as the product permits partial withdrawal only after a minimum 10 years of investment.
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Should you go for a dengue insurance cover?
ET Bureau|
17 Aug, 2015, 08.44AM IST
Monsoon heralds the arrival of the dreaded dengue and urban areas are the most at risk. Data from health insurer Max Bupa shows there was a 111% increase in dengue claims in the last year and reimbursement of dengue claims went up by 200% in June 2015 compared to 2014.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
"The highest prevalence has been observed in Delhi, Haryana, Punjab and UP. In the south, it is seen in cities of Kerala and Karnataka. In the west, we have got maximum claims from Mumbai followed by Pune," says Antony Jacob, CEO, Apollo Munich Health Insurance.
A serious bout of dengue entails a hospital stay of three to five days. Though insurers say the claim size is between Rs 30,000 and Rs 40,000, treatment at a private hospital can cost Rs 65,000 to Rs 70,000. "We have settled claims up to Rs 1 lakh," says Somesh Chandra, COO, Max Bupa Health Insurance. Recognising the trend, Apollo Munich recently introduced Dengue Care. The plan provides a Rs 50,000 cover for treatment at a premium of Rs 1.2 a day. The plan is upgradable to Rs 1 lakh for Rs 659 annually. This is a flat-premium for all age groups.
"It is an uncomplicated product, where the customer has to pay a single premium without complex underwriting. It does not require any tests. All one has to do is fill up a form and selfdeclaration that he is dengue free. The cover kicks-in after a cooling-off period of 15 days post policy purchase," says Jacob.
Do you really need this?
A standard indemnity health insurance policy covers only medical expenses incurred during inpatient treatment. Dengue Care reimburses outpatient billing up to Rs 10,000, besides covering for inpatient treatment.
This is important as most dengue patients gets cured via outpatient treatment. "The overall admission rate will be between 12-15%," says Dr Yatheesh of Apollo Hospital, Bangalore. Treatment cost at the initial stages is nominal.
"Outpatient treatment costs between Rs 2,500 and Rs 3,000, including tests," says Yatheesh. Do you need an additional Rs 50,000 cover to cover the risk of paying the doctor's fee and medicines? Not really.
Any standard health plan provides full coverage for dengue along with pre and post hospitalisation expenses for 30 and 60 days, respectively, which takes care of consultation and tests.
If you have a decent indemnity plan, you are safe. In case you think your existing cover is insufficient, the Rs 1 lakh dengue cover costs Rs 659 yearly. If you enhanced your regular health plan by a lakh, you would pay anything between Rs 500 and Rs 1,300, depending on plan type. This extra Rs 1 lakh will not just take care of dengue but any other medical emergency.
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Websites & mobile apps that can make household work easy
, ET Bureau|
17 Aug, 2015, 08.41AM IST
More and more services are now just a click away, through a website or a smartphone app. Karan Bajaj takes a look at some of the most useful services that make household chores a breeze.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
HANDYMAN
UrbanClap
This app-only service puts you in touch with certified professionals like electricians, plumbers, photographers, fitness experts, interior designers, event planners and so on. Once you put in your requirements, it shows you a list of available personnel along with their charges and you can then contact the one you prefer. 1mg
To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Timesaverz
Timesaverz offers a smaller bouquet of services. They focus on providing repair and cleaning services as well as handymen for plumbing, electricity and carpentry. Depending on the kind of service required, the app shows the approximate time the job will take. You can pay before or after your have availed the services.
OTHER OPTIONS: www.Easyfix.in www.HouseJoy.in www.Doormint.in
GROCERY
BigBasket
Boasting of a catalog of over 14,000 products, Big-Basket offers free delivery for orders above `1,000. You can choose the time slot for delivery, including on the same day. There is some offer or the other always on, so you can end up saving a fair bit too while shopping.
Grophers
Grophers acts more as a delivery service than a e-commerce website. You select and pay for what you want to order from a store near you. Grophers will pick your order and deliver it to your doorstep. If your order is over `250 per store there is no delivery charges, otherwise you pay `49 per delivery.
VeggieKart
This one is dedicated to delivering vegetables and fruits. There is even a recipe corner to teach about making food from the vegetables you are buying. An offer section lets you know about the promotions running. There are no shipping charges if you shop over `150.
Zopnow
The new kid on the block. It offers excellent deals, discounts and free shipping. Zopnow claims to offer a tailormade experience depending on your product preferencesâ€"everything you have previously ordered is listed in a tab for quick re-order. There are five delivery slots in a day to choose from.
PepperTap
PepperTap first asks for your location to check if it is part of its delivery area or not. Next you see neatly laid out categories like food, grocery, beverages, household, beauty, baby and health. There are delivery slots to choose while making the purchase as per convenience.
LocalBanya
Banya's Bargains is where you quickly browse through all products available on discount. Other features include the option to create a list on the go, quick re-order from your purchase history or from the 'My usuals' tab. You can choose a delivery slot as per your preference.
MEDICINES
1mg To get medicines delivered home, just upload a picture of your doctor's prescription on the app. You can then order medicines (allopathic, homeopathic and specialty drugs) using the app. There is also a section on details about a specific medicine and its effects on your body. Plus, you earn up to 15% discount on your total amount.
Netmeds Other than ordering medicine, Netmeds lets you clear doubts about your medicine from pharmacists. There is an option to email/WhatsApp a query and you can track your order. Once you upload your prescription, pharmacists will get in touch regarding delivery and payment. You can search for medicines across various brands.
GOODSERVICE
Goodservice deserves a special mention as this app can be used to get anything done. Once you register an account and update your contact details, the app opens up a chat windows similar to a WhatsApp chat. All you have to do is type down what you wantâ€"it could be food delivery, handyman services, quotations for a venue, fixing your computer and so on. You will be given multiple options to choose from to fulfill your order along with tentative time and charges. Once you place an order on the app, it is executed almost immediately. The best part is that the app is not time limited - you can use it at 2am or at 6pm and it will be done.
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