My Journey To Billionaire Club

12 Things to expect in a Financial Planning Report

noreply@blogger.com (Ramalingam K) — Tue, 18 Jun 2013 05:33:00 +0000

Life is mainly a substance of expectation. Do we really live or are we forever in the expectation of living? It is said that “Expectation is the mother of all frustration”.

What you are expecting in a financial planning report and what your financial planner offers in his report should match. If it is not matching, then it may lead to frustration. To have a long lasting relationship with your financial planner, what you expect from the financial planning report is more important.

Let us discuss that in detail here. You can clarify your expectation and start having an acceptable expectation.

1) Current status:

This section deals with the current financial status of the individual and his family. The information what you have given in the financial planning questionnaire / factfinder will be re-arranged in a tabular column for easy reference.

This will contain the details like income, expenses, structured liabilities with EMI, unstructured liabilities, list of fixed assets and financial assets.

2) Net worth:

Net worth is generally calculated by deducting your liabilities from your assets. Generally self occupied house is not considered as an asset.

This net worth statement tells you what your current net worth is. This net worth statement an individual is similar to the balance sheet of a company.

Every year when you are reviewing your financial plan, you can check how year after year your net worth is getting increased.

3) Financial Goals with Values:

The list of financial goals with its expected present value will be mentioned. Also the financial planner will project the present value of the goals and will find out the approximate future value of the goals.

‘Do you need to take loans to achieve any of the goals?’ will be mentioned separately in this section.

4) Achievability of the Goals:

The financial planner checks, with your current savings and future savings potential, are it possible to achieve all your financial goals or not.

If there is a gap or shortfall, he comes out with some alternative scenario by making some adjustments or compromises like,

Retiring at the age of 58 instead of 55,

Buying car at the end of 5 years instead of 3 years,

Buying property worth 70 lakhs instead of 80 lakhs.

5) Inflation Assumption:

Inflation rate needs to be assumed for the coming years.

What is the pre-retirement inflation?

What will be the post retirement inflation?

What are all the different rates of inflation for different financial goals?

All these inflation assumptions will be explained in this section.

6) Suggested Asset Allocation:

To meet your goals, with your current savings and future savings potential, what is the rate of return required?
In addition to finding out this rate of return the financial planner will also find out what is the required asset allocation to achieve this rate of return.

Therefore, this section deals with how much allocation you need to make different asset classes like equity, debt and gold.

7) Report on Risk Management Plan:

Additional life insurance & health insurance cover required will be mentioned. Also the need for property insurance will be shown.
This section additionally covers the amount of emergency reserve needs to be created.

8) Suggestion for Portfolio Revamp:

The financial planner makes suggestions for restructuring your existing investments in sync with the financial plan and goals.
‘What are all the investments to be withdrawn? Where the subsequent investments to be stopped?’ will be answered here.

Financial planner will do this portfolio revamp based on the 2 parameters. He will filter schemes which are all not supporting your financial plan and goals and the schemes which are all not performing. He will ask you to withdraw these schemes and suggest you to reinvest in better schemes.

9) Cash Flow Statement:

Cash flow statement explains what your total income is and how that income is utilised towards expenses, loan repayment and investments.

10) Investment Plan & Tax Plan:

This section covers, ‘Where the savings from the current year income needs to be invested to meet the short term financial goals as well as long term financial goals?’ and “What are all the tax saving investments to be made to reduce the tax liability?”.

11) Analysis and Recommendation:

Any other specific point to be suggested will be mentioned here. Thinks like where the FD maturity proceeds which you will receive after 2 years will be utilised, updating the residential status in some of the investments…

12) Next Review:

When is the next financial plan review scheduled? Generally it will be at the end of 6 months from the date of your initial report.

Having only the partial knowledge leads to assumption. Assumption leads to undue expectation.

If you get perfect acquaintance, that would change expectation into certainty.

Hope the above points clarify what to expect from a financial planning report.

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

The Amazing discovery in stock market investing that will make you wealthy

noreply@blogger.com (Ramalingam K) — Wed, 05 Jun 2013 05:58:00 +0000

I got an opportunity to watch a video of world chess champion Mr. Vishwanathan Anand playing a game against Boris Gelfand, the Israli chess champion. A particular aspect I noticed in both these champions is the amount of patience they apply with each move. Both of them didn’t rush to make a move upon their turn. More than talent, I feel the amount of patience they apply is the key for success here. Does the same theory apply in stock market investments as well.

Do I need to wait patiently in the stock market? Can I make quick money with selling or buying stocks quite often? Read ahead to understand the answers and the amazing discovery in stock market investing that will make you wealthy.

The Surprising Fact about Selling Stocks:

I am selling the stocks when the market goes down and save myself from a heavy the loss. What is wrong with this?

Say for example, You sell a particular stock just because the market crashed. Later you feel sorry for seeing the same stock going up after a market recovery. ‘Ok, I sold it in order to save myself from losing big money, what is wrong with it’, telling yourself and you go on with your routine. You are knowingly ignoring the fact that you have made a blunder of not keeping patience. The same happens while rushing to buy stocks without understanding the fundamentals of that stock. Isn’t a bad decision making?

Look at the anvil of the blacksmith, how it is hammered and beaten; yet it moves not from its place. Investors need to learn patience and endurance from it. You can have 100% benefits in the stock market only if you wait with patience. Remember the words from Jessy Livermore here. ‘The big money is not in the buying and selling.... but in the waiting’.

Active Vs Patient: One thing that separates winners from losers

Invest in a stock market, do nothing in between but wait and get the highest returns in 10-15 years. Is this a gimmick or a joke?

Not at all. There is a misconception of comparing stock market with a poker game. Those who want to make quick money, start investing on stock market without understanding the facts. Many go away from stocks thinking that they would suddenly loose everything they invest.

The reality of investing in stocks is totally different. Did you know the probability of losing your money in long term stock investments, say 10-20 years? It is zero, also you get a return of about 13-17% per year. You invest Rs.10,000 in Sensex or mutual funds now in 2013.

By the end of 2023, the money you reap will be approximately Rs.1,80,000 which is 15% increase per year. Actively selling or buying stocks short term will make you a very poor investor. As the investment guru Warren Buffet says, ‘The Stock Market is designed to transfer money from the Active to the Patient’.

STOP taking Emotional Decisions and START taking Rational Decisions:

It is very tough for me to control the urge to sell or buy a stock when the market is fluctuating. How can I control this urge?

Is this your worry here? First of all, understanding how the market is designed will help in controlling the urge of making quick decisions. The stock market is so volatile and you can learn the trend only by looking at its history. The graphs, up and down arrows with some percentage given daily or weekly basis will not help in decision making. Look at how the market worked in the past 10-15 years.

There were fluctuations due to various reasons like natural disasters, terrorist attacks, global economic fall-down, political changes and recession. Study how the market recovered each time it fell down.

Whenever you get the urge to take any short term stock investment decision, ask yourself these questions.

Is there any change happened in the fundamentals of the stocks you hold?

Why is the stock price going up/down? Is it connected to the performance of the company? What is the history of this company’s performance? How other companies are in the same industry perform currently?

Why did I choose to invest on this particular stock initially? Is the reason changed now?

Have I done enough research on this particular stock while investing?

Have you considered the tax consequences?

Are you selling because of the underperformance in the stock or market or industry?

Are you being rash, emotional or reactive?

Is the stock undervalued or overvalued at its current price?

Do you have the better use for the money after you sell?

Answering these questions will help to control the urge and make you wait for reaping the highest growth on your investments. Peter Lynch beautifully advices here. ‘Investors need to be patient. You don't need a lot of action. You can lose money fast in the stock market, buy you can't make it fast. It takes years to produce big results’.

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

How to survive from market crashes without any negative impact emotionally as well as monetarily?

noreply@blogger.com (Ramalingam K) — Fri, 31 May 2013 04:58:00 +0000

Whenever the words ‘recession’, ‘market downfall’, ‘global economic crisis’ come in picture, I think about Mr.Rudy Giuliani, the mayor of New York, when the twin towers were hit on sep 11th, 2001. He was put under a situation where he was blamed for unpreparedness, death toll increasing everywhere and people all around the globe looking at him with different emotions. The way he handled the crisis amidst political, global pressure and his personal issue of fighting against prostate cancer, it is just amazing.

Because of market euphoria, investors start thinking, “this time it is different. The things will be very rosy hereafter”. Don’t think like that. There could be recessions or market crashes anytime. Are you and your investments, well prepared for it? How can you cultivate similar emotional strength as of Giuliani’s while facing the recession and market declines? Read on to learn more.

Why does the market crash?

No one had any clue about a terrorist attack on twin tower and followed by a huge crash in the market. Always expect the unexpected market crashes and better learn to accept it too.

Do you know the most common reasons for market crashes?

At times, wrongly spread information make the traders to sell off the stocks and creates panic attack in the market.

Apart from recessions and global economic downfalls, the fraudulent activities like the Harshad Mehta scam (he used the flaws in the system and created an artificial bull market, then market crashed heavily when he get caught) and Satyam scandal (the stock value differed from the book value and market crashed when its MD Ramalinga Raju get caught for fraudulent activities) played major roles for market crash.

The ‘famous’ product collapses like housing bubble in the USA, and the dot.com bubble of recent times take a solid part in market downfalls. There are political reasons (unexpected defeat of BJP in 2004), natural disasters (Tsunami, Japan earth quake), terrorist attacks (Twin tower attack, Mumbai Taj hotel attack) are the reasons created unexpected impacts in the global market.

Do you know the best unknown secret to invest on stocks without worrying much about risk?

Did you know the shocking news when approximately 23,000 Americans committed suicide after market crash in 1929 and continued in 30s? The October 24th 1929 is still known as the ‘Black Thursday’ in market history when Dow went down by 23%. Winston Churchill who visited New York, a week after the crash, witnessed an incident where an investor who lost hugely due to the market crash fell from the 15th floor and went into pieces. This was noted in Churchill’s diary as well.

These kinds of suicides happen in each and every market crash. What is the reason behind these suicides? They are over exposed to the stock market. They have invested in stock market beyond what they can afford financially and psychologically.

Say, you have 10 lakhs to invest. Because of market crash the 10 lakhs can erode in value. Are you financially capable of absorbing this capital erosion? This effectively takes you to the assets allocation. How much money you need to invest in safe assets and how much money you can invest in risky assets? Don’t get over exposed to the market at any point in time beyond the pre-determined asset allocation.

Are you psychologically prepared to take risk? Up to what percentage of loss you are comfortable to tolerate?

Unless you get clarity on how much risk you are comfortable in taking financially and psychologically, you will not be able to proceed further. The soiled mirror never reflects the rays of the sun; similarly those who are not clear about their risk affordability and tolerance are deluded by the illusion of market hype. They will never reap the benefits of the stock market.

Stock market is not for short term investments. Is it so?

Ok, you have invested ‘X’ amount in stock market by keeping ‘Y’ amount in other safe investments. What should one do while market crashes? Just wait for the market to revive back.

Lehman brothers had to close its sub-prime lender due to mortgage crisis. The increasing subprime mortgage misdeeds and foreclosures resulted in decreasing securities backed by these mortgages led to huge loss to BNC mortgage, a subprime lender of Lehman brothers in 2008. Investors hurried to sell those stocks and the market crashed.

Look at what happened just in three years for those who waited patiently with the stocks. The stock values returned to 100%. Imagine what one will achieve if wait for few more years. Success seems to be largely a matter of hanging on after others have let go.

Stock market like Phoenix gets back to shape in a matter of time. If you invest your short term money if market crashes, then you may not be able to wait till it recovers and you may be forced to book loss. Invest only your long term money in the stock market.

Are you matured enough to handle the market crashes?

If you are emotionally matured, market crashes will not disturb you. If market crashes are disturbing your inner strength then you are not emotionally matured. Peter Lynch rightly said, "You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." How the market works is unpredictable and no one can predict the impact when market falls down.

You have got 2 options. You invest in the stock market only to the extent that the market crashes will not disturb you. The second option is to develop your emotional maturity so that the market crashes will not disturb you at any exposure.

If you follow any of the 2 options, no market crash can disturb you. If you get emotionally disturbed during market crashes, then it is time for you to choose the best which works for you from the above 2 options. Change is the only thing that never changes.

Are you emotionally stable enough to handle the market fluctuations?
Do you want to develop the key attributes to become a strong investor?
Are you ready to make this change?

Understand economic recessions and expect the unexpected market crashes. Don’t invest another rupee until you could do this. Once you could do this, then you are all set to survive from market crashes without any negative impact emotionally as well as monetarily. Also you are well prepared to accumulate wealth through your equity investments.

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

7 Secrets of Winning The Stock Market Game

noreply@blogger.com (Ramalingam K) — Fri, 17 May 2013 07:12:00 +0000

Humans have a natural tendency to follow the crowd, but when it comes to stock market investing, following the crowd can often result in losses. Why replicate the mediocrity of the masses when you can clone the success of the World’s Greatest Investor?

The investment secrets of warren buffet have got unveiled here.

1) Look at quality businesses; not just the stocks

Warren Buffett said, “When I buy a stock, I think of it in terms of buying a whole company, just as if I were buying a store down the street.” Most investors don't analyse the businesses they invest in. They simply follow the symbols or brands of successful corporate houses.

If you are buying a shop, you will analyse about the products dealt by the shop, overall sales, consistency of sales, competition for the shop, competition strength of the shop, how the shop will manage the change in customer trends and so on. We need to apply a similar logic before choosing a stock. Don’t think that you are only buying a few shares of that company. Will you buy the whole company if you had enough money?

2) Are you willing to own a stock for 10 years? If no, then don’t own it even for 10 minutes.

Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years. In the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company. Looking at the short term opportunities in the stock market will not be a long term successful strategy. If you don't feel comfortable owning something for 10 years, then don't own it even for 10 minutes.

3) Check thousands of stocks and look for very high bargains

Avoid investing based on the stock tips or recommendation. Do your own research. Analyse thousands of stocks before choosing the right stock to invest. Once you have chosen a right stock, wait till the share is available at a very high bargain price. Buying a right stock at the right price is the key to investment success. Investors have the luxury of waiting for the “fat pitch”.

It is really difficult for an individual investor to analyse thousands of stocks and finding out the right time to buy a stock. If this is the case, you can outsource this Portfolio Management Scheme to a professional financial planner or wealth manager. But you need to be careful in choosing a professional financial planners who is capable and at the same time customer centric.

4) Scrutinize how well management is using the resources.

Check how efficiently the management is using its resources like money, manpower and material. This management efficiency will in turn reflect in Return on Equity and Return on Capital.

5) Always stay away from “THE HOT STOCKS”

The hot stocks are those stocks which have some attention catching activity such as severe volatility in share prices, high trading volume or when the stock is in news. Stay away from these hot stocks.

Warren Buffett once said, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

6) How much money you will make?

Before investing in a stock calculate ‘how much money you will make’ in this investment. Of course, you need to make a few assumptions to do this calculation. But do calculate. Most often investors tend to ask the share is undervalued or overvalued. Identifying the intrinsic value of the stock is difficult and the various models available to calculate the intrinsic value are faulty. Warren Buffett wrote in a report “Unless we see a very high probability of at least 10% pre-tax returns, we will sit on the sidelines.”

7) Get rid of the weeds and water the flowers — not the other way around

People have this tendency of loss-aversion. That is when the share price has fallen down by 50%, they choose to wait. They convince themselves and others by saying “It will definitely come back”.

Also people will rush to book profit when their shares go up just by 10%. In effect investors tend to keep the loss making shares with themselves and they offload their profitable shares. Actually it needs to be the other way around.
These seven secrets properly applied in the stock market would be your roadmap to riches.

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

Why you’ll never become RICH so long as you don’t follow this? A very obvious but much neglected money management code

noreply@blogger.com (Ramalingam K) — Mon, 13 May 2013 11:43:00 +0000

It’s a fact of life that, if you don’t follow this simple and very obvious money management code, you will never ever become rich. Don’t let the negligence to follow this, keep you from becoming rich.

To become profitable and stay profitable, the bigger organizations always look at cost cutting methods. They cut a part from the salaries, reduce expenses on travel, in serious situations, go to an extend of laying off some employees. They do this to increase the net worth of the company year after year.

Likewise, to become rich and stay as rich, you need to increase your personal net worth year after year. Cutting on your unnecessary spending is the most important aspect of increasing your personal net worth and saving for a rainy day and keeping away from the fire.

How come a cut on spending save you from disasters? How can one determine what to buy or what not to spend on? What happens when we buy more? Read on.

The biggest threat to your savings:

I have a credit card, just scratch it whenever I want to buy something and pay it off every month, where is the problem here when I don’t pay any extra cash?

Keeping a credit limit and paying off every month doesn’t help at all in the long run. Have you ever returned empty handed when you go for window shopping at the malls? Need it or not, considering the monthly limit one has set, they tend to buy more unwanted things. If you buy things you do not need, soon you have to sell things you need.

Your credit card limit need not be your monthly expenses limit. Your monthly expenses should be based on the monthly budget you have prepared. Remember Warren Buffet’s quote here. "Do not save what is left after spending, but spend what is left after saving".

Do you track your expenses periodically?

We all make budgets periodically, but how many of you are tracking the expenses? Tracking your expenses will help you to identify the areas where you need to implement the cost cutting measures. Do not think about spending all the money on vacation while getting a bonus. Add a percentage from the bonus on the amount you have kept for vacation. Keep the rest for other necessary expenses or add it on your investment. It is important to remember the ancient story of learning from ants saving for rainy days.

How to transform your savings into wealth?

Robert Kiyosaki: "It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for."

The biggest challenge to transform your savings into wealth is inflation. Inflation reduces the purchasing power of your savings. How can you beat inflation?

Imagine an escalator which is coming down. If you have to use that escalator to go up, what you need to do? You need to climb up the escalator at much faster speed than the speed at which it is coming down.

So as to beat the inflation, you need to invest in avenues which can generate more rate of return than the inflation rate. It is your hard earned money. Now you make it work hard for you and generate more returns for you by investing in prudent investment avenues.

Why should one aim at having a passive income?

With the fluctuating job market, have you made any plans for the unexpected expenses if you sit without a salary for few months? How long you can survive just with the money from your savings? Think about it. Having an additional income will help in need. When you have an additional income, you can run your family without any worries and use the money from savings only for emergencies.

The speaker and the finance expert, Dave Ramsey quotes beautifully here. "Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this."

How can we retrieve a passive income? Your investments can generate a passive income. Stop unnecessary spending and start saving and investing for your rainy days. Creating a corpus of investments to the extent the passive income generated from those investments should take care of your living. Once you reach that point then you can stop going to work and start thinking of retiring.

✓ What do you want to achieve?
✓ Add more things at home and compress your savings?
✓ How do you want to spend your time after retirement? Relaxing or running around in a new job?
✓ Do you want to save some for the generations to come?

Answer these questions and start cutting on your unnecessary spending right now.

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

A small mistake that could ruin your investments completely and what to do about it?

noreply@blogger.com (Ramalingam K) — Sat, 11 May 2013 06:59:00 +0000

Do you remember what you did before buying your first bike? Made a research on various brands, looked at the trend of each brand & the product on how they worked and chose the best one you liked, right? Even though, your bike helps you to travel places, no matter what, the resale value will be lesser than the buying price. Isn’t it?

You are investing your time and energy in an object which you will not get any money in return few years down the lane. Think about the amount of time and effort you need to spend on something which is going to bring in more returns. Enough knowledge and informed decision making will help you to become a great investor. Go ahead and read to know how you can become an expert in stock market investing.

Look before you leap: Foremost among all, have a goal set in. For example, ‘I am 25 now and want to earn ‘X’ amount when I am 45, it is going to be ‘Y’ amount when I am 58 or 60 while retiring’. Focus on choosing the fundamental investment models which can bring in returns as you have planned. Understand the business, company, market fluctuations before stepping into the market.

The ugly truth about investing with ‘gut feeling’:

Investing on stocks with a gut feeling may be successful in one time, but not a right strategy in the long run. All that glitters are not gold. Remember the retirees, middle class and lower middle class workers coming to road crying for their money back when finance companies offered FD with 18% interest rates but defaulted. Most of them didn’t know the intricacies of how these finance companies were running and where exactly they invested the money received from the public. Same think is what happened to the investors in Emu farming business in the recent times.

Insurance agents, mutual fund brokers, and stock brokers have got a bundle of schemes to sell you. They have got their monthly business targets to meet. Listen to them and learn about various options available to invest on stock market. Do your homework well before getting in. Investing without doing any homework to understand, how the investment model works will be very risky. Knife is a useful tool but need to be careful while using it. Even a slight mistake can cut your fingers. Investing on stock market without enough knowledge is like giving a knife to a 2 year old. He can seriously hurt himself or the others.

Why you’ll never be a successful investor so long as you invest without understanding the product?

It is true that investing on stocks is risky as in running any business. One needs to take a calculated risk. The blindly taken risk and uninformed decision making will lead your investment to go into pieces.

Mutual fund NFOs that joined the IPO club in 2008 will be the best example here. The pure equity NFOs from the mutual fund companies raised Rs. 32,309 crores in 2006 and this NFO collection went up to Rs. 55,000 crores in 2007. About 71%of these schemes were trying to cope up with less than Rs. 10 per unit in 2008.

An analysis done by ETIG brought out the truth about these equity NFOs. Without realizing that the mutual fund is different from the stock market IPOs, there were huge losses reported from the investors. Those who learnt well and understood the wrong projection of mutual fund as IPO escaped from a huge loss. This had even led to banning the word ‘IPO’ when new offers were made on mutual funds.

A Deep Danger to your investments and how to avoid it:

Be careful about the structured investment products that come under many names like capital protection schemes, Highest NAV guaranteed Schemes, Nifty linked structured products and more.

Most of the times, the banks, mutual funds or insurance companies offer such products. They commonly offer these products with the ‘unwritten’ guarantee to secure your capital investment. These products are not easy to understand and they invest in shares, derivatives and debt instruments. They will use risky asset class, but will claim they have combined different asset classes in a way the risk is nullified.

Few Simple Questions that could make you a successful investor:

Don’t invest in anything which you are not able to understand. One of the main reasons why investors loose money in the stock market is they don’t understand completely the product in which they are investing and they don’t know what is the level of risk they take with those investments.

If you are on the verge of investing in mutual fund or other stock market, based investment options, ask yourself the below questions before leaping into the market.

Is this investment scheme registered with SEBI or other regulating authorities?

Is this investment suitable to me? Is this matching with my financial goals?

What is the risk involved and am I comfortable taking that risk?

How is this investment going to make money? (By way of dividend, interest, capital appreciation…)

What must happen for this investment to appreciate in value? (Stock market should go up, interest rate should come down, midcap should do well…)

What are all the charges in the scheme?

How liquid the scheme or investment is?

Most importantly, learn through the history to know how the market fluctuations have impacted any particular stock or a mutual fund. You can help yourself by remembering a quote of Warren Buffet, "The markets like the Lord, helps those who help themselves. But unlike the Lord, the market does not forgive those who know not what they do." Swimming in the ocean is not the same as you swim in your own pool. You need to check on the wind, waves, and the pattern of the tide before getting into the water. A slight mistake here will drown the person.

Doing mistakes and then blaming the market will not help to save even a penny. Estimate the risks involved in each model and the ways to save your money in such scenarios. Do your homework and understand before investing. An ounce of prevention is worth a pound of cure. By failing to prepare, you are preparing to fail.

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

Who Else Wants More Returns and a Simple, Hassle-free Investment Method?

noreply@blogger.com (Ramalingam K) — Mon, 06 May 2013 05:42:00 +0000

What is the best investment strategy to earn more return on investments? Is there a simple, hassle-free, proven, sure-fire investment method available? Having a routine on investing, yield more rewards. Is this a true statement? How can we set a routine, that too, on investments? Is it really possible? Confused with lots of things spinning in your mind? Read ahead to get all your doubts clarified.

Have you noticed the way the women work at home, especially in the workday mornings? There will be many seeking their care for one thing or another, cooking sounds and aroma needing their attention every minute, they multitask at ease. If you keenly notice, you will be amazed at the pace and efficiency in everything they do. How is this possible, without having a degree or diploma in ‘home management’? Having a routine set in every action they do, they are able to effectively keep up with their work.

What everybody ought to know about setting up a routine investment?

You can fix a percentage from your monthly salary as an investment. Saving 10% every month from your monthly earning will be a good start. A challenge in having a routine is to keeping up with it. Whatever happens, you should never compromise on investing a fixed percentage as you have decided. How can we escape from an unexpected additional expense in a particular month? For emergencies, you can spend from your savings but never to miss adding 10% on your savings for that month.

For example, a lower middle class bank clerk starts investing 10-20% every month from his salary, when he is about 25-30 years of age. In 15-20 years down the lane, he could easily use the returns from his investments, on his family health, children’s higher education and marriage. He can set aside funds to solve each purpose and live an independent life even after retirement. The pensioners can still continue with the routine of investing from their earnings. Isn’t it a hassle-free mode of investing? Don’t ever skip; stick to the routine.

Warning: Not setting up a routine for investment may destroy your wealth…?

Not having a routine will leave you in a dependent mode or in a disaster state at a later point. You will be running around to earn at an old age when you should be living at peace. Look at Michael Jackson who earned more than 100 times compared to the bank clerk. What did he leave when he died? Michael Jackson had $400 million worth of debts hanging over him when he died.

With lack of knowledge in investments, even the once rich and famous personalities have lived in a poor state at their old age, especially when they need to have a relaxed life.

The biggest threat to your stock market investments and what you can do about it:

Investors who were very active during a bull run will not be active during the bear run. Investors who committed a mutual fund SIP will hesitate to renew when the market falls down. This is a biggest threat.

Do not stop your routine of investing on stocks, even while the market crashes. There will be less number of buyers when the investors are scared to sell. Keep going with your routine and utilize this time to buy more stocks and mutual funds, of course, for less money. Look at the history, Sensex was at its peak in 2007, but crashed and bottomed out in Mar 2009, again up in the end of 2010. If someone had invested by buying more stocks in mar 2009, he would have rewarded substantially at the end of 2010.

Instead of having and following the routine people look for short cuts and quick money or they will stay in their comfort zones by not investing. So they skip the routine and loose the returns. Routine brings more discipline.

Invest like you do shopping:

As quoted by the bestselling author of ‘Beating the Street’, Peter Lynch, "There are substantial rewards for adopting a regular routine of investing and following it no matter what, and additional rewards for buying more when most investors are scared into selling".

Why do people buy and shop more during Diwali or New Year? The reason is there will be a Big Sale happening in the malls because of that you will get things for discounted rate. If the price discount is more the crowd will be more.

Do we do the same thing with stock market? When the market comes down (discounted price for shares and mutual fund units) do we invest more? Instead of investing more investors will mindlessly sell. If we do invest more during the market fall, we will get compensated well for taking this audacious valiant decision.

Time to Take Action:

Now take your investment diary and write down the answers for the below questions.
 What percentage of your income you are able to save regularly?
 Under what situation, you may skip this regular savings?
 Do you invest in stock market or mutual funds regularly?
 Do you skip or discontinue your routine investments in stock market or mutual funds?
 If you could have continued your routine investments (regardless of your personal situation or market situation), how much additional money you could have made?

The answers will prompt you to set a routine and follow the routine investment irrespective any adverse condition. You are on the way to the simple, hassle-free and more profitable investment method.

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

How to Invest in Stock Market - Long Term and Short Term?

noreply@blogger.com (Ramalingam K) — Thu, 02 May 2013 04:09:00 +0000

Investing long term in stocks looks like a conservative mode of managing money. Is this a right statement? Will I lose my money by investing short term on the stock market? Do I reap the ‘real’ benefits with short term stock investments? Do you have such questions running in your mind all the time and in turn you move away from investing in the stock market? If so, you are reading a right material here.

How to determine whether to invest long term or short term?

Have you ever watched the reality shows happen on Indian television? Once the finalists are selected, they go public seeking votes. The artist who is popular among the public gets the most number of votes and announced as a winner, and the least becomes the loser. At times, the loser seems to be much more talented than the winner. This is how the stock market works in the short term. If you look at a person who sustains in the industry as a performer for a long time is the one who has got talent in spite of winning or losing a contest. This is how the stock market works in the short term. Not only the price of a stock, this short term popularity also creates an impact on the market effectiveness.

How the short term popularity does affect the market efficiency?

In 2008, Reliance power came with a share IPO. The issue prices of shares were Rs.450. People were anticipating because of artificially created hype, the share will re-open at Rs.900 per share when it was listed. With this expectation, this IPO got oversubscribed by 69 times. 69 times oversubscription was record breaking because of the over expectation. When the hype disappeared, popularity subsided, market realized the stock’s real worth by weighing it fairly. On the very first day of listing, these shares closed at Rs.372 which is at a loss of 17% from the issue price.

History repeats. Yes. What happened in 2008 in Indian stock market got repeated again in 2012 in NASDAQ.

Did you know the familiarity of Facebook(FB) made a chaotic situation when Mark Zuckerberg, the chairman and the CEO of FB, announced it going public in May, 2012? Nasdaq was crowded by the investors wanting to invest on Facebook. Everyone wanted to put their money on Facebook stocks, there was a huge confusion occurred with opening a trading account among individual traders, agencies and other investors. An half an hour delay occurred to begin the trading process causing a huge loss of approximately US$500 million to the banks and it took several hours to clear the situation.

This particular period is now quoted as ‘it looked eternal in the whole era of high frequency trading’. As per the latest news on Mar 26, 2013, the SEC(Securities and Exchange Commission) has approved Nasdaq to pay out US$62 million to those invested on Facebook stocks.

Are you going behind the short term popularity?

The efficiency of the market can be figured out only over a long period of time. Remember what happened in 1999 when dot.com was a word uttered by all techies and non-techies. People were rushing to invest on the tech companies as if they were on a treasure hunt. Stock market created an illusion on the minds of investors that Technology sector is going to be the only future. When tech bubble burst stock market fell down heavily. Many medium sized software companies which have been hyped in the market like silverline, DSQ need to close their operations.

The hype or popularity artificially created for IT sector vanished in 2000 and investors realized the popularity was just an illusion and the stock prices of those IT stocks which have been over valued because of popularity has come down drastically and weighed by the market fairly.

Investing for long-term:

As a quote by Warren Buffet explains, “In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.”

Let us take an example of a company called Balmer Lawrie & Co. This company exists in India since 1867 and LPG cylinders being used in your households are manufactured by them. They are listed in NSE as well in BSE. Do you know the compound annual growth rate(CAGR) they have achieved in the last 10 years? It is 15.4%. How many of you have invested in this company? How many of you even know this company existed?

In the financial year 2002-03 sensex closed at 3048. After 10 years, in this financial year 2012-13, sensex closed at 18835. In the last 10 years, the sensex has grown more than 5 times with a CAGR of 19.97% p.a. If you could have invested Rs.1 lac 10 years back, it should have grown to Rs.6.18 lakhs. This is the benefit of investing for long term. How many investors who make short term transactions have reaped these kinds of returns?

Going behind a popular stock as a short term trader and not looking at the intrinsic value to harvest the long term benefits will make you a substandard investor. Which group do you want to be in? Do you want to increase the risk by aggressively investing on short term stocks? Want to be in a safe place by brilliantly planning on long term stock investments and increasing your overall return? Take a right choice now.

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

Who is an “Independent” Financial Advisor?

noreply@blogger.com (Ramalingam K) — Wed, 17 Apr 2013 05:34:00 +0000

What do investors expect from a Financial Advisor?

The straight forward answer for the above question will be “unbiased advice”. Investors expect the advice given by the financial advisor to be unbiased, neutral and independent.

What do they really get from Financial Advisors?

Most of the investors get only “misselling” in the form of financial advice. Most of the financial advisors or investment agents/brokers are following the commission based model. That is, they will recommend (sugar coated misselling) an investment scheme and you need to invest in that scheme through them. The investment company will give them commission.

As an investor if you invest in a mutual fund or any insurance scheme through the financial advisor, the advisor will get commission from Mutual Fund Company or insurance company.

The origin of Misselling or Biased Advice:

If the income of the financial advisor is based on the commission which he gets by selling investment products, then there is a possibility that he will ‘recommend’ schemes where he gets more commission. The scheme which is giving him more commission will not be really suitable to you. The scheme which is really suitable to you will not be giving him more commission. There is a conflict of interest.

That’s why you will see more agents or financial advisors try to sell you ulips, in which they make around 25% to 60% commission. For the same reason the financial advisor will not recommend you term insurance, that too no one will even talk about online term insurance. Term insurance is the cheapest form of taking insurance. Online term insurance is cheaper by 50% to 65% when compared to the term insurance distributed through agents.

Offlate, have you seen anyone recommending you PPF? Why? You will get to know the answer if you check, is there any commission for selling PPF.

Attachment Vs Independency:

If your financial advisor is an LIC agent he will be telling you ‘East or west, LIC schemes are the best’. If he is a mutual fund agent, then he may be telling you the mutual fund schemes are the best. If he is a stock broker, then he will claim ‘insurance and mutual fund will not give you better returns; share trading is the best way to make money’.

Your financial advisor should not be attached to a company or product for getting his income by way of commission. If you hire a fee based financial advisor, he will be attached to you as you are the person who is giving him fees. So he will not recommend you schemes with hidden charges. He will REALLY recommend you schemes with low charges or no charges.

Fee Based Advice and Optional Execution:

For the advice the fee based financial advisor offers, he will charge you a fee and he will give you an option for executing the investment transactions. That is he will not force you to invest through him. You can get advice from him and invest directly or invest through an investment agent or broker. If you want and feel comfortable then you may invest through your fee based financial advisor also.

In the fee based model, as an investor you are directly paying him fees. So the financial advisor will really act in your best interest.

Which group are you in?

There are two kinds of investors. One is who really want independent financial advice and ready to pay fees. The other one is who also want independent financial advice but not ready to pay fees. So they look for a commission based agent to give them unbiased advice.

Fee based advice will make money for you. The commission based advice will make money for the broker. Do you want your investments to make money for yourself or your broker?

Investors, who want to save the fees, end up paying more than the fees in the form of hidden charges in the investment schemes.

Last but not the least:

Independent financial advice will reduce your overall cost, though you pay fees. Remember, if you don’t pay a fee, you don’t get advice; you will get only ‘misselling’.

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

10 Things you may not know about PPF

noreply@blogger.com (Ramalingam K) — Tue, 16 Apr 2013 10:10:00 +0000

One of the popular, preferred, and preeminent tax saving investments is PPF – Public Provident Fund. We all know about PPF. Do we know all about PPF? Let us discuss in detail about PPF in this article and understand it comprehensively and completely.

1) Where to open the PPF account?

PPF accounts can be opened in a post office or in selected bank branches. The regular KYC documents need to be submitted for opening a PPF account with a minimum investment of Rs.500.

2) What is the interest rate?

The current interest rate for PPF is 8.8% p.a. The interest rate will change every financial year in accordance with the average bond yield of the previous year. The interest rate will be fixed 0.25% above the 10 year government bond yield.

3) How is the interest calculated?

For the balance amount in your PPF account the interest is compounded annually. However, the interest calculation will be done each and every month.

If your contribution to the PPF account is credited on or before 5th of that month, then that contribution will bear interest for that month too. If it is credited after 5th of that month, you will get interest only from the subsequent month. Therefore, if you make sure your contribution is getting credited in your account on or before 5th of that month, and then you will not miss the interest for that month as well.

4) What is the tax benefit?

Under Section 80 C, whatever the contribution you make in PPF is eligible for tax deduction. Also the interest from PPF is also tax free.

These tax benefits are available as of now. If DTC is implemented, then the tax benefits will change prospectively and not retrospectively.

5) What is the minimum and maximum investment?

The minimum amount needed to be invested every year is Rs.500. The maximum amount of investment allowed every year is Rs.1 lac. You can make investments through a maximum of 12 installments per year. If your minor child also holds a PPF account then the combined limit of both the PPF account is limited to Rs. 1 lac.

Not making the minimum investment in a year will attract a penalty of Rs50.

6) When does it mature?

A PPF account will mature at the end of the 15th year. This can be extended for one or more blocks of 5 years thereafter.

7) Can I withdraw in between?

Yes. You can withdraw after the 6th year. However, you can withdraw only up to 50% of the balance at the end of 4th year or at the end of immediate preceding year whichever is lower. You will be allowed to withdraw only once in a year.

8) Can I get a loan against my PPF account?

Yes. You can avail the loan facility only from the 3rd year. You will be allowed to take a loan to the extent of 25% of the balance in the previous year.

9) Can an NRI open a PPF account?

NRI can’t open a PPF account. If you open a PPF account as a resident and subsequently you become an NRI, you will be allowed to continue and contribute till its maturity on a non-repatriable basis.

10) What happens if the PPF account holder dies?

In the event of the death of the PPF account holder, the balance amount in the PPF account will be paid even before the completion of 15 years, to the nominee or legal heir of the deceased person. The nominee or the legal heir is not allowed to continue the PPF account by making fresh contributions to it.

PPF is an excellent tax saving option. It needs to be part of your tax saving investment or not, depends upon your overall tax plan and asset allocation for the current year. Do your tax plan and check PPF fits into your tax plan or not in the current year.

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

What to expect from a Financial Planning Report?

noreply@blogger.com (Ramalingam K) — Fri, 05 Apr 2013 06:47:00 +0000

Life is largely a matter of expectation. We never live; we are always in the expectation of living. It is said that “Expectation is the mother of all frustration”.

What you are expecting in a financial planning report and what your financial planner offers in his report should match. If it is not matching, then it may lead to frustration. To have a long lasting relationship with your financial planner, what you expect from the financial planning report is more important.

Let us discuss it in detail here. You can clarify your expectation and start having an acceptable expectation.

1) Current status:

This section deals with the current financial status of the individual and his family. The information what you have given in the financial planning questionnaire / factfinder will be re-arranged in a tabular column for easy reference.

This will contain the details like income, expenses, structured liabilities with EMI, unstructured liabilities, list of fixed assets and financial assets.

2) Net worth:

Net worth is generally calculated by deducting your liabilities from your assets. Generally self occupied house is not considered as an asset. This net worth statement tells you what your current net worth is.

Every year when you are reviewing your financial plan, you can check how year after year net worth is getting increased.

3) Financial Goals with Values:

The list of financial goals with its expected present value will be mentioned. Also the financial planner will project the present value of the goals and will find out the approximate future value of the goals.

‘Do you need to take loans to achieve any of the goals?’ will be mentioned separately in this section.

4) Achievability of the Goals:

The financial planner checks, with your current savings and future savings potential, are it possible to achieve all your financial goals or not. If there is a gap or shortfall, he comes out with some alternative scenario like retiring at the age of 58 instead of 55, buying car at the end of 5 years instead of 3 years, buying property worth 70 lakhs instead of 80 lakhs.

5) Inflation Assumption:

Inflation rate needs to be assumed for the coming years. ‘What is the pre-retirement inflation, what is the post retirement inflation, what are all the different rates of inflation for different financial goals?’ will be mentioned in this section.

6) Suggested Asset Allocation:

To meet your goals, with your current savings and future savings potential, what is the rate of return required? The financial planner will find out this rate of return and also find out to achieve this rate of return what is the required asset allocation.

7) Report on Risk Management Plan:

Additional life insurance & health insurance cover required will be mentioned. Also the need for property insurance will be shown. This section additionally covers the amount of emergency reserve needs to be created.

8) Suggestion for Portfolio Revamp:

The financial planner makes suggestions for restructuring your existing investments in sync with the financial plan and goals.

‘What are all the investments to be withdrawn? Where the subsequent investments to be stopped?’ will be answered here.

9) Cash Flow Statement:

Cash flow statement explains what your total income is and how that income is utilised towards expenses, loan repayment and investments.

10) Investment Plan & Tax Plan:

This section covers, ‘Where the savings from the current year income needs to be invested to meet the short term financial goals as well as long term financial goals?’ and “What are all the tax saving investments to be made to reduce the tax liability?”.

11) Analysis and Recommendation:

Any other specific point to be suggested will be mentioned here. Thinks like where the fd maturity proceeds which you will receive after 2 years will be utilised, updating the residential status in some of the investments…

12) Next Review:

When is the next financial plan review scheduled?

Probability is expectation founded upon partial knowledge. A perfect acquaintance with all the circumstances affecting the occurrence of an event would change expectation into certainty, and leave neither room nor demand for a theory of probabilities.
Hope the above points clarify what to expect from a financial planning report.

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

Financial Planning and Tax Planning

noreply@blogger.com (Ramalingam K) — Tue, 26 Mar 2013 07:04:00 +0000

It really hurts to see a large pie of the salary cut towards tax. So the obvious question in everyone’s mind is ‘How do I reduce my tax?’. Every year we are forced to invest in something which reduces our tax liability. It may be NSC…it may be PPF…it may be ulip…it may be Mutual Fund ELSS.

Tax Planning: A New Perspective

These tax saving investments are at times taken based on advice from colleagues or friends. Generally investors tick the scheme if it helps to reduce tax liability. Apart from reducing tax, there are some other questions to be asked.

What is the risk involved? Are the returns from the scheme taxable? Do I need to make investment in this scheme every year or just a one time investment? Does it support my financial goals? Apart from tax saving investments is there anything to be considered in tax planning?

Tax Planning in your Financial Planning:

Tax Planning is also a part of your overall financial planning. When tax planning is done in your financial planning, it plans tax in a much broader perspective.

1) Tax Saving Investments:

This is the most obvious one. In order to reduce the tax liability, where you need to invest will be answered here. This deals with the investments under section 80C. Also it covers section 80D and the housing loan interest for tax saving purpose.

When these tax saving investments are made or selected based on your financial plan, these schemes will not only save your tax, it will also help you achieve your life financial goals like children’s future need or retirement plan.

Also the tax saving investment scheme selected may change every year depending on the requirement of the financial plan. If in a particular year, you have more exposure in equity, then the financial planner may recommend you to invest in PPF. In another year, if you have less exposure in equity, he may ask you to invest in Mutual Fund ELSS.

Tax planning will be different from year to year and person to person.

2) Salary Structure:

Now-a-days employers provide some flexibility in structuring the salary of their employees. 60% to 70% of the salary will be given under the pre-determined heads. For the 30% to 40% of the salary employers will give you some flexibility. That is you will be allowed to claim that portion of your salary under allowance A or allowance B or allowance C or as a combination of allowance A, B and C.

If your employers provide such flexibility then share the details with your financial planner. He will be able to tell you in what way you structure your salary that is going to be beneficial in reducing your overall tax burden.

3) Superannuation scheme:

Your employer may introduce some superannuation scheme with some special tax benefits in which you contribute an X amount and your employer will also contribute equivalent to the X amount.

When your employer introduces any such schemes, if you share the details with your financial planner, he will study the scheme and let you know whether it is a good scheme or not. If it is a good scheme, then is it suitable to you or not? If it is suitable to you then how much you can contribute towards the scheme?

Many employees are clueless what to do, when employer introduces such schemes. If you opt to do your tax plan in sync with your financial plan then all these problems will be solved.

4) ESOP:

When employers allot some of their shares to its employees by way of Employee Stock Option (ESOP), they generally announce some packages. That is the employee will get x number of shares free and y number of shares can be allotted at a subsidized rate.

Also there will be some lock in period for these shares. After the lock in period the shares can be transferred to your demat account or the employers can sell those shares and give you the money.

Again here, if you share these ESOP package details to your financial planner, he will be able to tell you in what way you claim you ESOP then that is going to be tax advantageous to you. Also he will check in what way these ESOP will help you achieve your life financial goals.

Last words:

From the financial planning point of view, tax planning has got much broader perspective. Generally tax planning will be done as a part of financial planning. Tax planning is covered under financial planning. But tax filing is not covered in financial planning. However, financial planner may do that tax filing service also with an additional charge.

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

Investing in Mutual Fund through Power of Attorney

noreply@blogger.com (Ramalingam K) — Tue, 26 Mar 2013 06:59:00 +0000

An investor will prefer to invest in mutual fund through a power of attorney under some special situations. Let us see a few examples of those special situations:

• When you are a frequent traveler,
• When you are not well,
• When you want your investments to be managed by your spouse or a well wisher,
• When you become an NRI.

Giving Power of Attorney:

You need to give power of attorney only to a right person. It is generally not advisable for an investor to give POA to his mutual fund agent. In many situations, the mutual fund agents have used this POA to their advantage. So you need to be extra cautious about selecting the right person to give POA.

You can give restricted POA. That is you can specify that the POA holder can only transact in mutual fund and not in any other assets.

Some of the older format of POA will not have the signature of the POA acceptor. It will carry only the signature of the POA giver. This format of POA without the signature of POA acceptor is not accepted by mutual fund companies.

Mutual Fund companies expect the POA to be signed by both the POA giver and acceptor. So when you are preparing a POA make sure that it has both the signatures of the giver and acceptor.

It is not mandatory that POA needs to be registered. Mutual fund companies accept even the unregistered POA.

KYC for both:

To transact in mutual fund through a Power of Attorney, both the investor as well as the power of attorney holder should have completed KYC.

When Opening a new MF folio:

Investor can register the POA, when opening a fresh mutual fund folio. You need to write the name of the POA holder in the specified column on the application form. Also you need to mention the PAN number of POA holder. KYC of the POA holder needs to be attached.

Notarised copy of the POA also needs to be enclosed with the application.

Though this folio is opened by the investor, as the POA is registered, subsequent transactions can be done by the POA holder as well as the investor.

POA holder can open a fresh mutual fund folio on behalf of the POA giver. Same set of the above mentioned documents need to be attached and the same details as mentioned above need to be filled in the application form.

POA holder can sign in the column specified for Applicant signature. Below the signature, clearly indicate that the signature is on behalf of the applicant by the Constituted Attorney.

Registering POA in an existing MF folio:

The investor can register the POA in his existing mutual fund folio by giving separate letter. In the letter he can mention the details of POA holder and request to register the POA in the folio. Pan car copy, KYC copy of the POA holder along with the notarized POA need to be submitted.

Once this POA registration is accepted in the folio, the POA holder can start transacting on behalf of the investor.

Cancelling POA in a Mutual Fund Folio:

By giving a letter to the respective mutual fund company to cancel the POA registered earlier, an investor can easily cancel the POA.

Both the POA registration and cancellation will be reflected on the account statement as a non-financial transaction.

At times, the investor may cancel the power of attorney, but will not intimate that with the mutual fund. In that case, mutual fund will allow the POA holder to transact on behalf of the investor. So if you are cancelling the POA, then immediately inform that with a letter to the mutual fund companies.

A final note:

Investors are advised to give POA to their spouse to transact on behalf of them in mutual funds. This comes in handy when you are sick are need to travel all of a sudden. During emergency and contingency, POA to the spouse will be of immense help.

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

Can I invest directly in stock market or invest through mutual funds?

noreply@blogger.com (Ramalingam K) — Tue, 19 Mar 2013 04:45:00 +0000

Where do we invest our long term money?

Where can I get better returns which can beat inflation?

The answer for both the questions is investing in stock market. Once you decide to invest in stock market, you have got two options. The option one is to invest directly in stock market and the option two is to invest through mutual funds.

Which Option to Choose?

Each of the options has got its own pros and cons. Depending upon your requirement and situation, you need to choose the right option. The following points will enlighten you on both the options and will also help you understand and check the factors to be considered before choosing the right option.

Knowledge and Expertise:

Investing directly in stock market definitely demands a good amount of knowledge and expertise. You should know how to read a balance sheet, analyse a company, choose a right company to invest, analyzing the sectoral trends, constructing a portfolio, stock valuation…

If you are comfortable doing all these things, then you have qualified the first criteria to invest directly in stock market. If you are not comfortable doing all these things, then you can opt to invest through mutual funds.

There is a fund manager in mutual fund who is an expert in equity investments. He along with his team of analysts will take care of investing in equities. As these fund managers are managing funds of many investors, they have crores of money to invest in equity market. Average size of an equity fund is 1000 to 2000 crores. As they are handling huge money, they do sophisticated research, buy research reports from various economic research bodies, and directly interact with the management team of the company before making investment into a company. It is not possible for an individual investor to do all these things.

Time:

Are you a time rich person? If you have answered yes, then you can think of investing directly in stock market. For doing stock market analysis & research, market watch, portfolio review, demands a lot of time.

Also as a direct stock market investor, you should have access to the market anytime. At times, there may be some sudden news or major stock market movement. Because of that you may need to make some investment decisions immediately. You need to react on time on those occasions. Investing directly in stock market is a time sensitive game.

Is it worth your time? During a stock market working day, you need to spend at least 2 hours on the stock market in order to be a successful investor. Instead of spending 2 hours everyday in the stock market, if you spend the same on your own business or profession or career, will you make more money?

A doctor may be able to earn more if he spends those 2 hours in his practice in instead of spending it on the stock market. It depends upon how much money you invest and how much return you make in the stock market vis-à-vis how much money you make in your profession.

If you are not a time rich investor, then you can choose mutual funds route for stock market investments. Here you will be spending very minimal time, but you will get almost similar returns to direct stock market investments.

Emotional Engagement:

There are 2 set of investors. One set of investors will invest in the stock market to make money in the stock market. There is another set of investors who will also claim that they are in the market to make money but actually they are in the market because it emotionally engages them.

Let me explain. When you are travelling in a car driven by a driver, it will not emotionally engage you. But when you are driving the car, it will emotionally engage you. It will emotionally engage you when you are overtaking another vehicle, when you are driving at 100Km per hour speed… It gives you a kind of thrill when you are self driving.

Similarly when you are investing directly, it also gives you a thrill. You will feel happy when the share you have selected has gone up. There will be a sense of achievement when you sold a share at profit. This is what I call it as emotional engagement. Instead of investing to make money over a period of time investors, invest directly for the kick or thrill of emotional engagement.

Remember. You need to be rational when it comes to money management. If you are emotional, that will spoil the entire game.

Emotional Maturity:

Are you emotionally matured? This point is just a continuation of the last point. As this one needs more emphasis, I am giving it as a separate point.

Many investors go crazy when the market goes up by 50%. They will invest 100% of their savings in the stock market. They also lose their heart when the market goes down by 50%. They will immediately book loss.

Because of emotional immaturity, investors invest more, when they are supposed to book profit. They book loss, when they are supposed to invest more.

If you are an emotionally well balanced person and a disciplined investor, then you can go ahead invest directly in stock market. Otherwise mutual funds will be your best choice. The fund managers in mutual funds take very rational decision. They are process driven and emotionally well balanced.

Final Selection:

Based on the above 4 parameters, you can choose between investing directly in stock market and investing through mutual funds. If you are considering these parameters, you will break the records in the stock market. On the other hand if you are not considering these parameters, you will break yourselves in the stock market.

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

Do you have a Risk Management Plan?

noreply@blogger.com (Ramalingam K) — Mon, 11 Mar 2013 05:45:00 +0000

Risk management plan is an integral part of any financial plan. Creating a financial plan without risk management plan is like starting a journey without doing any preparation for the vehicle such as checking the stepney, break oil level and other conditions of the vehicle. Not doing all these can make your journey towards a destination halt in between.

Life Insurance:

The amount of life cover you need to take will be decided, depending on your income earning capacity and the financial goals you have. When we say life cover, we don’t mean traditional policies like endowment or money back where you will get only 5% to 6% return p.a. and also we don’t mean ULIP policies where there is a heavy front loaded charge up to 40%.

We are looking for life cover and not investment. Insurance is different from investment.

When we say life cover, we mean life cover through pure term insurance policies. Of late, online term insurance policies are better because they are cheaper by 50% to 70 % than the offline term insurance policies. The offline term insurance policies are taken through insurance agents, so their commission is loaded in the premium. That’s why the offline policies are costlier than the online policies.

The idea is to compensate the financial loss to your family in case of any mishappening to you. You family needs to achieve all the goals which you have set for them irrespective of the fact that you are around or not.

Health Insurance:

Does your employer provide a health insurance for you? Does the employer provided health insurance cover all your dependents? This coverage amount is sufficient or not…? Will your employer cover under health insurance when you are in notice period?

After your retirement employer provided policy will not cover you. If you go for a separate health insurance policy at that point in time, because of age the premium will be higher and also the pre-existing diseases will not be covered. So what is the way out?

You need to find an answer for all these questions.

Also you need to cover you against accident and disability. Critical Illness insurance is also an important cover you should have for you as well as your dependents.

To have the optimum health cover you should have 3 policies namely health insurance, accident & disability insurance and critical illness insurance.

Property insurance:

If you have an independent house or flat that needs to be protected against any natural perils like fire, earth quake, flood… and also things like terrorism, riot. Though this kind of risks happening to our property seems to be very remote, if it happens, that will put our entire financial plan upside down.

Protecting your existing wealth is equivalently important like building more wealth. Moreover, the premium you pay for such property insurance is also very minimal. Say for a property worth 50 lakhs, the premium will be around Rs.2000.

Emergency Reserve:

You need to set up an emergency reserve in order to meet unexpected contingencies of life. Generally this reserve will be to the extent of 3 to 6 months of your expenses and other loan commitments. You need to keep this emergency reserve in a place which is very safe, liquid and at the same time needs to generate a decent return.

Emergency reserve brings not only brings comfort, it also brings peace of mind. When you have enough emergency reserve, then when the contingency arises you will not use your credit card, you will not be forced to withdraw from stock market, you will not be forced to opt for personal loan.

Also this emergency reserve needs to be increased every year by certain percentage to cope up with your increased spending.

If you start your journey towards your financial destination, after doing all these preparatory works in the form of risk management plan, you journey will be protected, peaceful and pleasurable.

Have a safe and smooth financial journey with a well thought out risk management plan.

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

How to construct a financial plan with a strong foundation?

noreply@blogger.com (Ramalingam K) — Tue, 05 Mar 2013 04:18:00 +0000

The motive behind creating a financial plan is to have a route map to achieve your financial goals. A plan that tells you what are all your realistic goals and what are all your unrealistic dreams. A plan that tells where you will be financially 5 years from now, 10 years from now and 20 years from now.

A strong foundation is important for a long lasting construction. Similarly when we are constructing a financial plan there are some basic things to be given more attention.

Current Savings and Investments:

We need to take into account what are all the current savings and investments you have. It could be cash in hand, cash at bank, investments in financial assets, real estate investments and other investments. However, this will not include assets which we are keeping it or maintaining for our personal use like personal jewels, self occupied house, car etc. This exercise of assessing our current savings and investments is done in order to understand and realize “where do we now stand financially?”

Future Savings Potential:

We need to take into account what is your family’s current income and at what rate this income is expected to go up till your assumed age of retirement. This growth rate of your income can be guessed to certain extend by considering your past increment experience and your industry standards. Based on this predicted growth rate of income, we need to project your income till your assumed age of retirement.

Also we need to project your expenses. Take what are all your expenses and project these expenses till your assumed age of retirement. Expenses can go up because of 2 reasons. One is inflation and the other is change in lifestyle and life stage.

Once you project your income and expenses till your assumed age of retirement, then you will be able to assess how much you will be able to save year after year till retirement. Identifying your saving potential helps us determine where we can reach financially and how fast we can reach there.

Future Financial commitments:

Other important foundation work is to list down the future financial commitments for goals. First you need to list down the financial goals to be achieved on a timeline. That is you may want to buy a car 3 years from now, you may want to buy a property 5 years from now, you may need to meet your first kid’s higher education 10 years from now, second kid’s education 13 years from now, you want to retire 20 years from now and in between you would like to go for a few international vacations…

Once you list down the goals on the timeline, we need to find out the approximate future value of these goals. Finding out the future value of the goals is little difficult but possible if we follow a few simple steps. Try to figure out what would be the present value of these goals if you were to meet these goals today. That is, what would be the value of the goals in today’s cost of living? Then project this present value with inflation to find out the approximate future value of these goals.

Say one of your goals is to buy a property at the end of 5 years from now. Visualise and get more details about this goal. In which location you will be likely to buy the property? What would be the size and other specifications of the property? Once you have found out answers for these kinds of questions then you need to find out what would be the cost of such property now. As you have arrived at the present value of your goal, you need to project this present value of the property with assumed inflation rate for 5 years and you will be getting the approximate future value. Say the present value of the property is 70 lakhs, then the inflated value end of 5 years may be 1 crore.

We need to do this exercise for each and every goal. End of this exercise, you will have what are all the goals you are planning to achieve, when you are achieving each one of them and what would be the approximate future value of these goals.

Viability Check:

Now we need to check, with the current savings and future saving potential, is it possible for you to achieve all the goals. If it is possible, we can go ahead and create a financial plan. If it is not possible, then what is the alternative? The alternative may be to retire at 58 instead of 55, to buy the car after 5 years instead of 3 years or to buy the property worth 50 lakhs instead of 70 lakhs.

We need to create a few alternative scenarios which are achievable. After going through these alternative scenarios, depending on your priority you need to choose a scenario which suits best for you. You may like to choose a particular scenario and fine tune it. Like this we need to finalise a scenario which is achievable by a financial plan as well as acceptable to you.

Once you finalise this scenario, based on that a sound financial plan will be created. This viability check makes you understand the shortfall or gap between your realities and dreams. This makes you keep realistic expectations in your financial goals.

You can’t ignore these basic things in creating a financial plan. If these basics are ignored then your financial plan will become weak. You need to pay enough attention to these basic things which makes the foundation very strong and the financial plan very sound.

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

Five Reasons to invest in Debt Funds

noreply@blogger.com (Ramalingam K) — Fri, 01 Mar 2013 04:57:00 +0000

Though debt funds have got their own advantages, they are mostly ignored by common investors. Debt funds have got a unique place in your portfolio. Here are five simple situations, in which debt funds can be used by prudent investors.

1) To meet short term goal:

If you have got a goal, which you are planning to achieve in a short term like one year or 2 year, then debt funds are the ideal place to invest. Debt funds are less volatile when compared to equity funds. Also you will have predictable returns. You also have a choice of different debts funds which can be matched to different short term horizons like 1 month, 6month, 9months, 1 year, 18 months and so on.

You can’t take risk and invest your short term money in stock market. You need ensure safety and liquidity as far as short term investments are considered which is very much there in debt funds.

2) Any Time Money:

Under some circumstances, you may not know when the need for the money will arise. But when the need arises, you may need the money at short notice. Say situations like the down payment money which you keep it when searching for a property.

Debt funds are the ideal place to keep our emergency reserve. Now-a-days liquid funds of a few mutual fund companies come with debit card facility. So you can keep your entire emergency reserves in these kinds of debt funds.

3) Lesser Tax than FDs:

If you fall under 20% or 30% tax bracket, then debt funds make more sense for you when compared to fixed deposits. The fixed deposit interest will be added to your income, and taxed at the tax bracket you are falling under whereas the debt funds if invested for more than one year will be taxed at 10% without adjusting for inflation. For less than one year, I will suggest you to invest under the dividend reinvestment option of debt funds. The reason is the dividends from debt funds are taxed at 13.51%.

The interest from fixed deposits will be taxed on accrual. Even on your cumulative deposit, you need to pay tax annually. As far as debt funds are considered, you will be taxed only when you actually redeem from the debt fund.

4) As a launching pad for large equity investments:

If you are planning to invest a lump sum amount in equity funds, then it is generally suggested that you should not invest the lumpsum in equity funds at one go. You need to stagger your investments in order to take advantage of the volatile stock market. So as to stagger your equity investment, you can use the debt funds as a launching pad.

That is you can keep the entire money in debt fund and slowly you can invest them into equity funds in a staggered manner. If you would like to do this staggering in a more systematic and sophisticated manner, you can opt for STP –systematic transfer plan. That is you can give a standing instruction to transfer a fixed sum from a debt fund to an equity fund periodically.

5) To generate regular income:

If you would like to generate regular income then debt fund is one of the ideal investments for you. You can get regular income by way of choosing dividend payout option.

One more way to generate regular income from debt funds is to opt for SWP from debt funds. SWP is systematic withdrawal plan which is the reverse of SIP. From a large sum of investment, you can opt to withdraw the appreciation or a fixed sum on a regular basis.

Debt funds play an important role in anyone’s portfolio which can’t be replaced by any other investment vehicle. So, next time when you come across any of the above situations, make use of debt funds to your advantage.

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

Are you compatible with your investments?

noreply@blogger.com (Ramalingam K) — Sat, 23 Feb 2013 05:08:00 +0000

Mr.X, as a friend is more compatible to Mr.Y. At the same time, Mr.X is not compatible to Mr.Z as a friend. A same individual is compatible to one person but not compatible to another person. You all could have experienced this in your life.

Compatibility not only plays an important role in your personal relationship and also it plays a vital role in your relationship with investments.

An investment can make your life more miserable and the same investment can make the life of your friend more enjoyable. How come the same investment can trigger different emotions for you and your friend?

Your Frame of Reference:

The way in which you look at the investment, what you expect out of your investments, the way in which you relate with your investments is entirely different from your friend. That makes all the difference in your emotions.

From our childhood, we have been subjected to a series of impacts on our relationship with investments. These experiences have actually influenced us both positively and negatively to the extent of influencing our investment personality and generating essential investment beliefs and convictions in us, conditioning how we see the entire gamut of investment world.

Two important questions:

Finding out the answers to these important questions will unlock the potential to achieve your financial goals. The ultimate goal of any goal is peace. If you achieve a goal which is disturbing your peace of mind is not a goal worth achieving. Similarly making an investment disturbing your peace of mind is not worth investing.

How investments trigger emotions?

Take all your existing investments. Pay a close attention to them. Will you buy the same investments now? What made you select these investments? What are all the factors that influenced your investment decision?

You will see a pattern of influencers with different investments. Understand this pattern. Where did you get these patterns?

These patterns are only triggering your emotions. This will help you understand how you are emotionally balanced with your investments. This understanding is very important to take an investment decision which will not disturb your peace of mind.

Who you are as an investor?

You need to discover who you are as an investor. When you know yourself as an investor, turbulent times in the market can be easier to deal with. To find out what kind of investor you are, think about your personal boundaries, in addition to your strengths and weaknesses.

Are you patient? Do you incline to get panicky when times are unpleasant? How well do you deal with risk? Do you like to take chances? How do you balance the safety, liquidity and returns of your investments?

Investment Guidelines:

The answers to the questions, How investments trigger emotions? and Who you are as an investor? will set the guidelines for your investment decisions. This is completely unique and personal to you. Once you get these guidelines right, no one will be influencing you to take an investment decision which you are not comfortable or compatible with. Now you know in black and white what makes you tick an investment.

These investment guidelines will help you match yourself with the compatible investments. As these guidelines are based on your own self analysis, you will be in control of your investment decisions. You know what you are doing. You will never ever feel getting your peace of mind disturbed.

Once you frame these customized investment guidelines, investment performance will be in line with your expectation and investing no more will be an emotional distress.

The motive behind investing is not to make you miserable. The idea is to increase the sense of protection, peacefulness and pleasure. That’s why compatibility with your investments is more important than the return on investment.

Compatibility with your investments can make or break your investment success.

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

ABC of your Savings Bank Account

noreply@blogger.com (Ramalingam K) — Tue, 19 Feb 2013 06:44:00 +0000

Definitely, you will have a savings account. Have you ever thought about the significance of having a right savings bank account has on your personal finances? Understanding various types of savings bank account will not only help you in saving money and also in earning more money.

Now-a-days, it is practically not possible to run the show without a bank account. We all know that the banks are issuing debit cards which we can use at the shopping malls, eat outs… but what we all may not be knowing is you will be able to save money if you bank in a right way.

First you need to see what are all the different bank account options available. Depending upon your requirement you need to choose your right bank account. For example, an entrepreneur will choose a current account and a salaried person will choose a savings bank account.

Savings Bank Account:

As the name suggests, the main purpose of saving bank account is to encourage you save more. The major advantages of savings account is instant liquidity, safety of principal and a decent interest on the account balance maintained. There is no age limit for opening a savings bank account. Even a minor can open savings bank account with his/her natural guardian. Minors who are above the age of 10 years can operate the savings bank account themselves.

Safety of Principal:

The balance which we keep in our savings account is not 100% safe. The balance in the account is insured only for a maximum of Rs. 1 lakh. This amount is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). This DICGC insurance is available in all commercial banks. It includes even the foreign bank’s branches operating in India.

When it comes to co-operative banks, you need to make sure whether it is covered with DICGC. If a bank is not paying the premium for the DICGC insurance scheme for 3 consecutive years, then this insurance ceases to exist. So please make sure if you are depositing with a co-operative bank.

Account Holding:

You can hold this savings account as a single account holder or you can opt to hold this account jointly with your spouse or any other person. Also you can nominate your next kith and kin in your savings account.

Interest rate:

Though the general prevailing rate for savings account is 4.5%, it may vary as the RBI has deregulated the savings account interest rates since 25-10-11. So now the range of interest rate for savings account with different banks is 4.5% to 7%.

Inflation: The deadly demon

As the interest rates are less than 7%, it is not possible to beat inflation by keeping your hard earned money in just savings account. So keeping more money in savings account will not yield you high returns.

Instant Liquidity:

The main attraction in savings bank account is its high liquidity. You can withdraw cash from your account from your bank account in the branch during the working hours of bank.

Also you can make use of the ATMs. ATM stands for Automatic Teller Machine. Literally it means Any Time Money. When you need money you can withdraw from any ATM even during the non-working hours of a bank or also on a non-working day.

ATM withdrawals will have a maximum limit for a day. Depends on the type of account you have you can withdraw in a single day to the maximum of Rs.20000, Rs.25000 or Rs.50000.

These days, banks are providing door step service to their priority account holders or preferred clients. When you need money or want to deposit money they can arrange the bank staffs to come to your place and give money or collect money. To be a priority account holder or a preferred client, the minimum balance to be maintained will be higher. Usually 1 lac or above.

Tax liability:

The interest which earn from our savings account is exempt from tax to the tune of Rs.10000 per annum from the financial year 2012-13. The interest earned over and above this prescribed limit will be taxed. This will be taxed under the head “Income from other sources”.

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

Four Golden Rules of Money Management

noreply@blogger.com (Ramalingam K) — Wed, 06 Feb 2013 05:58:00 +0000

Personal finance is of important to all of us and we all need to know, understand and follow the Rules of Personal Finance to be financially successful in life. Many may feel that one could learn the rules by experimentation; however in my opinion it could prove very costly. We all need finances as far as we live, so it is best to know, understand and follow these rules to lead a financially healthy life.

a) Don't You Work For Money…? Does Money Works For You?

"Every penny saved leads to a penny earned", and I am sure we would never like to just depend on our salary for a lifetime. Similarly saving and investing money would mean that the earnings can be utilized for a better lifestyle and a comfortable retired life. It could also mean that we could retire early and do the things that we always wanted out of the profits of our investment.

This is not to suggest that we should not enjoy once in a while probably in a restaurant or to watch a movie. It only means that we need to use our common sense and look at few major expenses in the earlier month and look for ways to reduce it. One such expense could be personal debt or other unwanted expenses.

We may think that it is easier to pay off personal debt in easy monthly installments; however I would say that it is better to save money and then buy anything. Look out for gimmicks like 0% interest; it is mostly on those goods that are overpriced, so ask the retailer how much you would have to pay if you paid in full and you would be surprised to know you would be paying a much lower price.

b) Be selective and keep the company of those that care for personal finance:

It has been rightly said that we are influenced by the company we keep and this applies to your personal finance too. We need to keep the company of relatives, friends or co-workers who use their money and savings to make money and also to keep their finances in control. If they do not, then it is best to look for others who follow the rules of personal finance as their attitude could influence you too.

Our neighbors also play a role on whether you follow the rules of personal finance. Our neighbors influence the size of the house, cost of furniture and size of TV that we have. Having costly neighbors' means we could go to a more amicable locality where they follow the rules of keeping finances in control and also to invest money to make more money.

It is always best not to mix with those that have extremes of income and it is advisable to spend more time with those who are following the successful financial rules.

c) Make it a rule to keep finances under control:

None of us can enjoy become financially independent and enjoy a higher lifestyle just by being casual about personal finances rules; we need to keep finances in our control.

The best rule to personal finances means being prepared for financial contingencies. This means being prepared and taking life insurance, disability insurance, auto insurance and health insurance. Purchases of any item are also to be planned well in advance.

It is advisable that one makes a balance sheet for his family on an annual basis to judge how well one is financially progressing.

Keeping finances in control also means paying bills on time and your inability means that you should find someone trustworthy that could help. Financial trouble in most people's life is caused by trauma like a health problem, an emotional problem like loss of a near and dear one or divorce or financial problem like losing a job, some unexpected expenses and cut in pay.

Being prepared for all these eventualities with sufficient emergency reserve will help you sail the boat safely in any climate.

d) The last rule is trying to accelerate all these rules for personal finance:

These first 3 rules can be fulfilled only by taking steps to fulfill and accelerate these rules. Savings can be increased by taking steps to advance and progress in one’s career that means fulfilling the first rule of making more savings to become financially independent and enjoy a better standard of life. One could increase the money one saves by lowering the amount one spends on few of the highest expenses. Next it is best to spend time with those that are financially shrewd and systematically building their wealth in their lifetime.

Surely all this could definitely bring about healthy personal finance planning.

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

Do You Need Financial Planning?

noreply@blogger.com (Ramalingam K) — Sat, 02 Feb 2013 06:27:00 +0000

Let's answer this important question:

Most of us think that financial planning is only for the very rich or poor. There are others who think that people need to plan only when they grow old as they need to save for their retirement and old age. I would however say that this is not a right way to think about finances as it is required for all phases of life. It would be smart and prudent to embrace financial planning to realize all our dreams and goals in life. Financial planning makes life easier than what we could imagine life without it.

Some may consider risk is the spice of life and may enjoy it. However it is always good to plan and provide for our short, medium and long term goals of life and for those unexpected contingencies that crop up from time to time. The written word is more powerful, so it is best to have a written financial plan than just thinking it just over in the mind. The written word creates focus to provide not only for dreams like the car and house you would like to own, but also for unexpected contingencies.

Truly finances influence every area of our life, so financial planning is for all. Whether we are rich or poor, old or young, as we all have financial needs to plan and provide for our goals and needs. This goes to being smart to enjoy financial freedom and a peace of mind at all times in our life.

Think Financial Planning the Right way:

Making dreams a reality is more than just balancing income and expenses and assets and liabilities; it depends on many more important things like:

a) Time Horizon of Each and Every Goal:

All of us have goals in life that are to be achieved in a short; within a year or two, medium term; after 3 to 6 years and long term; those that have to be achieved in a much longer time. We need to be cautious and conservative in selecting investments for our short term goals as we would need money within a short period of time. We could take slight risk for medium term goals and could afford to take a more risk for long term goals.

b) The need of Liquidity influences our financial planning:

A financial plan is also dictated by the urgency of being able to convert investments into cash at the time of need; liquidity. It depends on how fast you want to be able to convert assets into cash to get money to meet your financial goals. Real estate investments are not easily liquidable whereas investments in shares and mutual funds can be easily liquidated.

c) The appetite to take risk determines financial planning:

Each person differs in his capacity to take risks; it depends on his profile, time required to reach the goals and his age. Those with limited resources and urgent financial needs need to take lesser risks and be very conservative in financial planning. Those that are young and have just started earning could take more risks as they have a long earning period to attain their goals and have no dependents. The same person needs to take a more conservative approach once he is married, has a family and dependent parents. Once one grows older and approaches retirement or is retired a more conservative approach needs to be adapted to not lose on investments.

d) Inflation is an undeniable reality and influences financial planning:

The rate of inflation is shocking; with the purchasing power of money is going down day by day more savings and proper investment is required to keep up with the future purchasing power. A chocolate that cost about Re.1, 10 years back now costs Rs. 10. Our financial planning for a car or a house 10 years later requires planning to take care of the rise in car prices, fuel, maintenance and declining purchasing power! Smart financial planning requires planning for financial goals considering the future inflated prices.

e) Financial planning is all about whether you want growth or an income:

Some of us may want a regular income, while others may want their investments to grow; financial plans are also determined by it. Buying an apartment could be for the purpose of renting it out to get a regular income; an old or retired person could aspire for it. Real estate plots could be bought by a young person with the goal of capital appreciation or increased value of the property over a period of time.

Generally at the younger age you need to look for investments which can appreciate and no need for regular income whereas at the old age, you need to consider investments which can give you regular income with or without capital appreciation.

Have you begun your financial planning?

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

Planning for life insurance at different life stages

noreply@blogger.com (Ramalingam K) — Wed, 23 Jan 2013 11:59:00 +0000

Increasing inflation, shift to nuclear families, and the fast track change in life style patterns throw a financial challenge which can be addressed only by life insurance. Your financial plan needs to be in sync with your life stage and the requirements that are very particular to your specific stage in life. The need for life insurance coverage changes with the change in your life stage.

The same amount of coverage may not be sufficient when there is a change in your life stage. So whenever your life stages change, you need to re-evaluate your need for life insurance coverage. The following are the different life stages which demands for a revision in your life insurance coverage.

Dependent Parents:

If you are single and you have financially dependent parents, then you need to take life insurance even before your engagement. You can’t compare yourself with other singles whose parents are not financially dependent. You are in a unique life stage. In case of any mis-happening to you, your aged parents should not financially suffer. Keeping this in your mind, you need to take required life insurance coverage.

Newlywed:

When you are married, the need for life insurance increases. You need to cover yourself with adequate life insurance in order to financially protect your spouse. The right time for you to take the first policy is as soon as you get engaged.

New Baby:

You need to increase your life insurance coverage when you are blessed with a baby. You are responsible for the financial well being of the child, its higher education and wedding. As a responsible parent, you need to protect your child’s future with adequate life insurance coverage. As soon as your wife’s pregnancy is confirmed, you need to re-evaluate your need for life insurance.

New Home:

Whenever you buy a new home on mortgage, your outstanding liability goes up. In case of any eventuality to you, this financial burden falls on your family. So as to place your family in financial comfort, you need to take enough life insurance which covers the outstanding loan, maintenance of the property and property taxes to be paid. This coverage will make your new home a happy and peaceful home.

Job Promotion:

Job promotion results to increased income. Increased income paves the way to a better lifestyle. Your family needs this increased income in order to maintain that new lifestyle. As you need to protect your family’s new lifestyle, you need to re-evaluate your life insurance requirement.

New Debt:

All your debts like car loan, personal loan need to be covered with an insurance policy. Whenever you apply for a loan, you need to increase your life insurance coverage. You need to make sure that you are leaving assets for your family and not the outstanding loans as liabilities.

Children Education:

Policies on life of growing children especially those studying for expensive courses like engineering/medical/MBA’s from India or abroad since money outgo is fairly large

Changes in marital Status:

If your marital status changes because of death of your spouse or divorce, then you need to rework your life insurance requirement. The reason that, your family is solely depends on you now. Also you need to make necessary changes in the nomination of the existing policies in which you have nominated your spouse.

Business liabilities:

If you are a businessman, then your business liabilities are also an important factor in determining your life insurance coverage. All your trade debts and business loans are need to be adequately covered with insurance coverage. This will help especially when it is not a family business. Also insurance policies cannot be attached in case a decree is passed against a judgment debtor and it helps creation of a protection fund.

Post retirement:

After your retirement, you don’t earn from your work. So there will not be any financial loss for the family in case of any mishappening to you. So all your insurance policies can be closed or cancelled on your retirement. During your working life, whatever the policies you take, you need to make sure that the policy matures or closes on or before your retirement.

In a nutshell, understanding the life stage in which you are presently in, and taking the life insurance coverage that suits your life stage, gives you and your family a peaceful mind.

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

Do You Need Financial Planning?

noreply@blogger.com (Ramalingam K) — Sat, 22 Dec 2012 07:18:00 +0000

Let's answer this important question:

Most of us think that financial planning is only for the very rich or poor. There are others who think that people need to plan only when they grow old as they need to save for their retirement and old age. I would however say that this is not a right way to think about finances as it is required for all phases of life. It would be smart and prudent to embrace financial planning to realize all our dreams and goals in life. Financial planning makes life easier than what we could imagine life without it.

Some may consider risk is the spice of life and may enjoy it. However it is always good to plan and provide for our short, medium and long term goals of life and for those unexpected contingencies that crop up from time to time. The written word is more powerful, so it is best to have a written financial plan than just thinking it just over in the mind. The written word creates focus to provide not only for dreams like the car and house you would like to own, but also for unexpected contingencies.

Truly finances influence every area of our life, so financial planning is for all. Whether we are rich or poor, old or young, as we all have financial needs to plan and provide for our goals and needs. This goes to being smart to enjoy financial freedom and a peace of mind at all times in our life.

Think Financial Planning the Right way:

Making dreams a reality is more than just balancing income and expenses and assets and liabilities; it depends on many more important things like:

a) Time Horizon of Each and Every Goal:

All of us have goals in life that are to be achieved in a short; within a year or two, medium term; after 3 to 6 years and long term; those that have to be achieved in a much longer time. We need to be cautious and conservative in selecting investments for our short term goals as we would need money within a short period of time. We could take slight risk for medium term goals and could afford to take a more risk for long term goals.

b) The need of Liquidity influences our financial planning:

A financial plan is also dictated by the urgency of being able to convert investments into cash at the time of need; liquidity. It depends on how fast you want to be able to convert assets into cash to get money to meet your financial goals. Real estate investments are not easily liquidable whereas investments in shares and mutual funds can be easily liquidated.

c) The appetite to take risk determines financial planning:

Each person differs in his capacity to take risks; it depends on his profile, time required to reach the goals and his age. Those with limited resources and urgent financial needs need to take lesser risks and be very conservative in financial planning. Those that are young and have just started earning could take more risks as they have a long earning period to attain their goals and have no dependents.

The same person needs to take a more conservative approach once he is married, has a family and dependent parents. Once one grows older and approaches retirement or is retired a more conservative approach needs to be adapted to not lose on investments.

d) Inflation is an undeniable reality and influences financial planning:

The rate of inflation is shocking; with the purchasing power of money is going down day by day more savings and proper investment is required to keep up with the future purchasing power. A chocolate that cost about Re.1, 10 years back now costs Rs. 10. Our financial planning for a car or a house 10 years later requires planning to take care of the rise in car prices, fuel, maintenance and declining purchasing power! Smart financial planning requires planning for financial goals considering the future inflated prices.

e) Financial planning is all about whether you want growth or an income:

Some of us may want a regular income, while others may want their investments to grow; financial plans are also determined by it. Buying an apartment could be for the purpose of renting it out to get a regular income; an old or retired person could aspire for it. Real estate plots could be bought by a young person with the goal of capital appreciation or increased value of the property over a period of time.

Generally at the younger age you need to look for investments which can appreciate and no need for regular income whereas at the old age, you need to consider investments which can give you regular income with or without capital appreciation.

Have you begun your financial planning?

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

Stock market and guaranteed NAV never goes together

noreply@blogger.com (Ramalingam K) — Fri, 21 Dec 2012 05:54:00 +0000

Whenever there is a statement about anything in this world, regardless of who has said it, do not believe it. But to analyse it and know the truth is wisdom (Kural: 423): Thiruvalluvar, a celebrated Tamil poet.

Sankaran, a 28-year old civil engineer working with a multinational company in Chennai had invested all his money in stocks, mutual funds and ULIPs. When the market was at 20,000 levels, his portfolio was showing huge profits. However, he lost heavily during the market crash. Sankaran is just wondering if he had en-cashed all his investments when the market was at 20K, he would have been a happy man today.

While Sankaran was blaming the stock market for his misfortune, he saw an advertisement in a newspaper. It was about a new ULIP scheme that guaranteed the highest NAV for first 7 years of its maturity. The scheme says that even if the stock market crashes subsequently the investor will get the highest NAV. Guaranteed.

Sankaran thought this is what he wanted at a time when all his investments were in the dumps. He could not believe his eyes. He checked the printed brochure and the scheme details on the respective insurance company's Website. It all confirmed that the highest NAV is guaranteed. He wanted to sign up for one such policy with a huge premium. However, before signing up the policy he wanted to know, 'how could they guarantee the highest NAV?'

He was not satisfied with the answers he got from his friends and relatives who he spoke to. So he got in touch with a professional financial planner for better clarity. If you too are looking for more clarification on 'highest NAV assured schemes', do read on...

When they say the highest NAV is assured we assume the highest stock market related return is assured. Is that assumption right? If that assumption is right then there are some points to ponder over:

Who gives this guarantee? Stock markets have crashed by more than 50 per cent during the downfalls in the year 2000 and 2008. If somebody could have given guarantee of highest stock market returns, they could have become bankrupt. Again during the first 7 years of the policy the stock market could meet similar downfalls. Assume someone has got exceptionally extraordinary ability to predict the stock market and moved out from the stock market when it reached its peak. S/he will not work for an insurance company. S/he will be on her/his own and making money without revealing this secret to the entire world. Why didn't they provide this highest NAV assurance earlier? Why are they not providing this assurance in their other schemes?

So far six insurance companies have launched this kind of 'highest NAV assured schemes'. They all are assuring the highest NAV. There is no doubt about it. But the fine print is they assure the highest NAV of their schemes, not the highest stock market related returns. If you assume that there is no difference between highest NAV and highest stock market returns and, both are one and the same, then you are wrong. They are different. These funds need not invest all your money or any of your money in the stock market. They may invest everything or most of your money in the debt market. So do we get stock market related returns on these schemes? No.

In order to make good the highest NAV assurance, a major portion of your money will be invested in the debt market securities for most of the time period. A debt fund is expected to deliver around 8 per cent to 10 per cent per annum. Therefore highest NAV assurance is not rocket science. Even a novice can launch a highest NAV fund and keep on investing the money collected only in bank fixed deposits.

Studies reveal that, whenever a product is re-launched with a fancy idea, buyers tend to forget the earlier pitfalls of the product and go after the fancy idea irrespective of the continuing pitfall. The same investors who have realised the entry level charges (to the extent of 20 per cent of first year premium) are high in ULIPs and rejected them, are now again after the ULIPs now because of the fancy idea: highest NAV assured, irrespective of the still continuing high entry level charges.

Here are some simple investment rules:

If you are looking for stock market-related returns, you can invest in equity mutual funds and stay invested for 5 years or more. If you invest in tax saving mutual fund you will get tax benefits also. These funds have no entry charges.

If you are looking for an insurance cover, you can go for pure term insurance policies. In fact term insurance and SIP in equity funds would be a good alternate to the high cost ULIPs.

If you are the kind of investor who is looking for assured returns, you can invest in PPF, NSC, or Bank FDs.

But please keep in mind that stock market and guarantees never go together.

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

Are you up for these 3 Financial Challenges?

noreply@blogger.com (Ramalingam K) — Fri, 21 Dec 2012 05:48:00 +0000

Let’s begin learning:

The safest way to double your money is to fold it over once and put it in your pocket. ~ Kin Hubbard

Kin Hubbard is right in saying that if we do not spend money unnecessarily we would be able to save money and double it. However most of us like to spend and would find it difficult to not spend at all. We feel that it could stress us further.

Accepting the3 financial challenges could help you in controlling unnecessary spending. Once you control and avoid unnecessary spending you can save more and invest more. So you can achieve your financial goals easier and earlier.

Here are the challenges:

A Day Away from spending

The challenge of not spending for a day could be difficult, but could help save and render some important life lessons. It is true as most of us have regular daily expenses on coffee, tea, lunch, and snack at regular intervals and fuel to travel to and from work.

Effective planning with implementation of this challenge involves ensuring that your fuel tank is full on the earlier day. Then setting the coffee vending machine the night before could ensure you refreshing brewed coffee to enjoy before you leave for work. Similarly, carrying homemade lunch and healthy snacks like salads, nuts, seed and snack bars could help you eat healthy and save money.

It is not as difficult as it appears. Once you start practicing it, it becomes part of your habit like fasting. It opens new ideas to you on saving on daily routine expenses.

A Week Away from Credit Cards

We all tend to spend a lot on small and big purchases with using the credit card. Credit card tends to make us spend excessively on unwanted purchases.

Buying things on cash would only make us spend on things that we absolutely consider necessary. It is found that sometimes postponing the purchase and preferring to pay cash could make us realize that the need was just momentary.

During the week away from credit card, you will be able to understand some of your spending pattern. You will come to know on what items you make impulsive buying and on what items you make need based buying.

As you are using cash to buy and not plastic money, you may want to negotiate the price. This develops your negotiation skills.

It is also true that buying unnecessary things with credit cards causes financial stress and spoiling of important life relationships. So avoiding credit card for a week could make you a need based buyer and better negotiator.

A Month Away from Eating Out

The last challenge of not dining out for a month could be difficult for many today. This is difficult but you would realize on implementation that it saves you a lot of money that is usually spent eating out in restaurants and cafeterias.

Avoiding eating in restaurants would not only create huge savings, but also would help you avoid excesses in foods. In addition eating out only on special occasions as a family would help you enjoy the food. It would make the family realize the value of spending money lavishly.

When we have a kid around one year old, we won’t offer any outside food. We will pack the home made food or snacks for the kid. You can follow the same for the grownups.

Again this is not as difficult as you think. Think of having a homemade food as a family in a park or beach. This will bring a different experience and enjoyment to your family. This will give you new ideas on having more fun with lesser money.

A Final Note

All these challenges do not mean that you should not spend at all on dining out or on getting good things of life. It only means you should spend the right amount of money for the right reasons. This self-control would not only help you save more but also in preparing you psychologically for a consumerism

I am sure you would learn a lot with these spending challenges once you try them.

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