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Tuesday, January 23, 2018

Life is all about goals, with discipline, we can reach there with ease!

Our life begin with goals. I may not recollect my #LifeGoals of my toddler days, but I do remember my goals beginning the age of 10. I had a dream of earning money and gifting my parents, aunts a lot of things, I used to note my wishes down in a diary about my wish-list. When I grew older, I realised, to fulfill those desires, I must earn my own. So, my full attention went towards making my academic efforts towards a career building process. I told myself, every page I am reading is adding towards my #LifeGoals of getting a decent job and saving-up. People of my age may not be as money minded I was back then, but if I look back, it was nothing but having a goal and planning towards it knowingly or unknowingly.

Cut to 2018. I am sorted with my financial planning, and revisit my portfolio and contingency plans on regular intervals. However, I realise, with sound understanding about various financial and other asset classes, only my contingency fund and term insurance plan I am satisfied about. I started working 10 years back, but I am yet to plan for a Europe trip, a house of my own and my dream car. I wonder, though I kept saving and investing a sizable portion of my salary each year, I never bucketed them under heads. So, now, my savings may allow me to withdraw from any investments and execute some of my plans but I don’t feel comfortable.


So to not make the mistake I committed, here is what you can do. As you start earning, divide your monthly income* under few heads - first priority should be buying adequate Life Insurance, a health insurance and start creating a contingency fund.
All our goals can be bucketed broadly under 4 categories.

1.    Short-term goals
2.    Medium-term goals
3.    Long-term goals
4.    Post retirement planning

Short-term goals
Depending on your age the goals can vary. To keep it short and crisp, I am assuming you have just started working, and about 21-25 year old, your short-term goal, may be buying a Mac-book, International trip with friends and paying off education loan etc. To attain this goals, you may consider a bank fixed deposits, bond funds, debt-oriented hybrid funds etc, it has certain amount of stability with limited return on investment, main aim of these investments is to accumulate and block the amount for the goals.

Medium-term goals
For a 21-25 year old, medium term could be 4-7 years. In this span, one may like to save-up for the down payment of housing loan, kitty for marriage expenses, honeymoon abroad and buying the first car. I am of an opinion that saving-up the installments is much better than buying on EMI. One may consider buying Hybrid mutual Funds in SIP, which will have upto 30% debt exposure to cushion equity market volatility. You may also consider large-cap equity funds if you have better risk appetite. These investments are likely to give much higher return compared to fixed instrument. One may see 10-12% upside on the capital invested. Monthly SIP is highly recommended in this scenario

Long-term goal
Typically over 7 years is considered long term in financial asset classes. For the goals like Child-birth, Children education, upgrading lifestyle, house and cars, medical expenses are highest at this phase. One may consider buying #ULIPs or equity mutual funds to substantiate the take-home salary or cushion as a second income.Fo this phase, one may consider buying aggressive portfolio of 100% equity linked products. Mutual Funds and ULIP both allows this. A sizable portion, atleast 10-15% of your income should be allotted in this category. Most of the Open-ended equity mutual funds and ULIPs allows the flexibility of partial withdrawal. Hence, the long-term investment can go on parallel with withdrawal benefits.

Retirement planning
Last, but the most important of all goals, we may call it as an Ultra long-term plan. Though many big companies provide PF facility for the employees, which accumulates alongside through the employment tenure, the low return may not be lucrative enough to completely depend on this for entire retired life. With inflation at high levels and growing living standards, we must plan start planning early for retirement.

ULIP comes as the best option for this category. With IRDA’s initiative, #ULIP products have capped the fund management charges at 1.35%, (lower than direct mutual Funds) and with mortality charges the products are capped at 2.25%. (lower than regular funds) The new wave of the ULIP products are investor friendly and for long-term commitment, when you have 15-20 years goal, you should consider this product in your portfolio. ULIP is nothing but insurance-cum-investment product. With stringent norms and zeal of the dynamic insurance companies, it has become a lucrtive investment product, which also provide insurance. With a long term disciplined investment, it helps create a sizable portfolio to take care of the post-retired life. You may consider shifting the corpus in an annuity plan or simply take interest payout on a senior citizen deposits. Life likely to be much more easy. Its #InvestBefikar


Few key features of this product you must know –

1.    The investment amount is eligible for 80C investments
2.    It has low lock-in of 5 years (you must not withdraw at that point until you have a dire need)
3.    The Insurance cover in this product is atleast 10 times the annual premium
4.    Incase of death of the policyholder, he/she shall get Fund value or the sum assured which ever is the higher
5.    ULIPs have choice of fixed income and equity funds under them to choose from
6.    You need to pay a fraction of service tax upfront on each premium
7.    Maturity amount is tax-free
8.    Post 5 year lock-in period partial/ complete withdrawal is possible (may be with surrender charges and penalties)
9.    It can be bought online as well as offline

The importance of goal based planning became all the important for me, after attending the bloggers meet recently organised by Bajaj Allianz Life Insurance. With a few quiz and games, it opened up the unexplored part of planning, which I wrote above as a note for my readers. The event organised by the Bajaj Allianz Life Insurance reiterated their commitment to create wealth for their investors along with the life insurance. They realise and advocate goal based planning to promote #InvestBefikar with  #ULIPs. Really liked their investment orientation for goals of life and not vice versa.   

To conclude, the moving dart board at the #BajajAllianzLifeInsurance bloggers meet, reminded me, life keeps moving. You can throw the dart at the right place only with planning and practice. 

Wednesday, January 3, 2018

How to start investing - Chapter 1 - popular Bank deposits

Wish you all a very Happy New Year. Am sure you all have had a good party and a host of new year resolutions. I am eager to share mine. With full of excitement and commitment, I would like to make the topic ‘finance’ easier, and help you become wiser to check on your financial health and get better. The first of the year, I am dedicated to understand what are the simple things you need to do to begin the process of investments.

To begin, needless to say you may consider the following things for smooth execution.

Also read - Smart ULIP

Online Banking - Very customer friendly process, you can start online banking just using your debit card. You can go to the bank website and choose net banking/ Online banking option. You will be guided with the process, if you don't have the pin handy, you can generate one easily, following the instruction.

Bank account - For easy tracking and smooth transaction, I follow one account for last 8 years or so, be it mutual Funds, insurance or paying credit card bills, it also helps in maintain records

Lets start with the most traditional investments, Bank deposit.

Savings account – This is the default savings/ deposit option for any individual with a savings bank account. The cash lying in the account earn a nominal 3 to 4 percent interest per year. Though I highly recommend Liquid Mutual Funds over savings account, still it is an available default option. 

Fixed Deposit - Though I am a fan of debt mutual funds and am aware that fixed deposit cant give an inflation adjusted return, I can’t deny the fact that some of my money stays in the bank account and in the form of fixed deposits. If you already have online banking, you just need to tap on the deposits tab and you will be guided with a small 30 seconds process wherein you have to key-in basic details like - the amount, branch you choose for the deposit (this comes handy if you are depositing a large sum of money, for which you may need to visit the branch for pre-matured withdrawal). The amount you choose for the fixed deposit must be lesser than or equal to your savings bank account. You need to check the interest rates, as it varies for different tenures and then chose the term for which you wish to block the sum and interest payout instruction - Monthly/ quarterly, annually or maturity. You may also need to fill in the details like what you want to do with the maturity proceed, you may choose to get the proceed credited into your account or you can choose reinvestment option (personally, I dont like this option). Do remember to keep you PAN card  handy incase you are depositing a sum above 50,000 rupees. 

One can have multiple fixed deposit parallely with different combination of amount, term and interest rates at the same time. Minimum amount could be Rs. 1000/ 5000/ 10,000 depending on the bank you are operating in.  Choosing a nominee is advisable for a large fixed deposit, its available in online deposit window. 

Recurring Deposit - Another traditional Deposit named as Reccurring deposit is somewhat a precursor to the SIP of mutual Funds. Similar to the fixed deposit option, you need to click the deposit option, choose the tenure (mostly year and multiple of years or 6 months). In this  deposit scheme, you need to choose a fixed sum of money to be added to your kitty every month and the interest is accumulated on pro-rata basis. This is a good option to create an emergency fund or accumulating wealth in 1-2 years times span.

Advantage of Deposits 

1. It is the most liquid investment
2. It can be used as an emergency corpus
3. It gives fixed interest / return on the investment
3. One can take a loan against the deposit, most accepted collaterals by Banks 

Cons 
1. Bad vehicle for medium to long term wealth creation
2. Doesn’t have any potential for upside/ variable return
3. Fixeddeposits are insured upto 1 lakh Rupee. Money above 1 lakh is not risk free, so incase the bank goes bust, they will not have any liability over 1 lakh Rupee
4. The interest earned on the deposits are taxed basis the individual’s tax bracket
Adios for today. Will come back to you with guidance on how simply one can buy mutual funds, life insurance, ULIP, health insurance, PPF, NSC etc.

Stay healthy, stay fit, and be money wise!


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