Prosperity can only come by properly balancing the four key personal finance components i.e. earning, spending, saving and investing. If we avoid any one of these, we are bound to face consequences sooner or later.

A retirement plan is an assurance that we will continue to earn a satisfying income and enjoy a comfortable lifestyle, even when we are no longer working. Still we avoid planning for our retirement until we are almost there. These are the most common excuses people have for NOT planning for retirement.

Excuse #10: “I’m too busy”

So many people want to plan for a better retirement, but they don’t have time. They think they’ll take care of it tomorrow or the day after that… and before they know it, several years have gone by. The best advice to such people is to stop procrastinating and start a Systematic Investment Plan today.

Excuse #9: “It’s too soon”

This excuse is often given by people who are in their early 20s and 30s. To them Retirement is too distant and they want to enjoy their life today. This is totally incorrect. The truth is, the sooner you start planning, the better chance you stand of having the kind of retirement you want. It’s never too soon, start now, save more, retire rich.

Excuse #8: “It’s too late”

If you’re already near or past your retirement eligibility date, you may think that whatever you’ve got is what you’re stuck with and it’s too late to do anything about it. Think again. If you’re unsure of what your options are, speak to a professional. Even if you’ve already retired, it’s important to consider how you’re receiving income and how long it will last. It’s never too late to revise your income distribution strategy.

Excuse #7: “I don’t need to”

Many people think that because they’ve been diligent about contributing to a savings account, or have a retirement policy from an insurance company they’re all set. Are you certain that what you’re saving will be enough? What about taxes? What about inflation? And are you sure your money will be properly invested? While saving for retirement is good, there may be other, better options for you and it may prove worthwhile to look into them. You also need consider adequate investment in diversified investment avenues such as equities, bonds, real estate and gold as per your risk profile. A plan for income distribution once you enter retirement is very important.

Excuse #6: “I don’t have enough money to get started”

This excuse seems trivial at first glance, but there is some truth behind it. You need to have money to save or invest money. The biggest challenge many of us face about investments is finding enough surplus funds. Most of the time we are engrossed in balancing our income and expenses that we feel that we don’t have enough money to save or invest. However, you don’t need a million to start investing, you can start with a humble sum of Rs.500 per month and see it grow.

Excuse #5: “My finances are a mess”

This all the more reason to seek an advisor who can help you sort through and understand your assets. Consider speaking with an advisor who can look at your complete financial picture, help you to understand it, and help you to develop a plan to make your “financial mess” work for you. Remember, you can save some money even if a major portion of your income go in servicing various debts – EMIs for car loan, home loan, personal loan or for that matter credit card bills that you’ve accumulated. Draw up a personal budget and stick to it. As Warren Buffet advises, you need first set aside money for investments before thinking about spending it.

Excuse #4: “My family will take care of me”

While, this could have been a valid reason few decades back, but the Social Structure in India is fast changing. The joint family system is getting replaced by Cellular Families. An increasing number of young Indians especially in the urban area are staying away from their families due to employment. Hence people have to develop a corpus to last them through their retirement without any help from family. While your family may still take care of you post retirement, don’t bank on it alone, create a back-up plan at the very least.

Excuse #3: “I have investments provident fund and pension plan, I’ll be fine”

Provident fund is a good tool to save regularly for long term, however it alone can not cover your needs and requirements post retirement. Also, the pension plans (either self-contributed or provided by employer) may fall short of covering your expenses. Furthermore, life expectancy is increasing, so probably you will have to fend for more number of years post retirement. Will your assets last that long? If you outlive your income, what then? You need to have a diversified portfolio of investments for your retirement. It’s a good idea to look ahead and plan lifelong income.

Excuse #2: “I don’t want to think about it”

Many of us are simply afraid of taking financial responsibility or growing old. Well, whether you like it or not, you can not avoid either of the two. But consider this, if you overcome your fear and set a financial plan in motion, you may not have to think about it again for quite some time. It may also give you more confidence to overcome your fear once and for all.

Excuse #1: “I don’t know how”

You don’t need to be a computer engineer to work on a computer. Similarly, you don’t need any advanced knowledge of finance to do your retirement planning. While it is possible to do everything on your own, that generally involves a great deal of research and a huge ongoing time commitment. If you’re putting off retirement planning because you don’t know how, consider speaking to a professional who does and start investing.

Conclusion

Whatever may be your excuse, don’t wait any longer. Unless you start early, you might find that time has passed you by. You will get older, your children will have growing needs, your expenses will rise…..and, before you know it, you may be regretting not planning for the future. Don’t be complacent that you will be okay whatever happens. Plan for your Retirement, today!

Related posts:

• How to do effective retirement planning?
• 5 investment myths to avoid
• Plan for continued income flow post retirement

Each type of investment has distinct advantages and disadvantages, and because each tends to behave differently in different types of economic mood swings.  Your retirement portfolio should be broadly diversified and well balanced to last for your and your dependant’s life time. Your may have various financial assets viz. shares, debentures, gold, bonds, life insurance, annuities, mutual funds, fixed deposit, company deposits, PPF, monthly income schemes, national savings certificates, etc in your portfolio. In addition to this it may also contain tangible assets that can take the form of gold, silver jewellery, precious stones like diamonds, real estate, painting, carvings etc. and other collectibles. You may also have some insurance to cover risk.

But, how can you be sure that your portfolio has all the components adequate enough to cover all your retirement needs? Let’s review various factors that you should consider while building your Retirement Portfolio.

Your Attitude Towards Risk

Firstly, understanding your attitude towards investment risk is very important. Normally we come across two types of investors :

1. Risk takers: They are willing to take high risk to get high return on their investments. They have high-risk tolerance. Their portfolios consist of equities, growth schemes of mutual funds, unit linked plans, variable annuities, real estate and long term deposits. The proportion of risky assets in the portfolio is higher as compared to safe assets.

2. Risk averse: Generally, a large number of people are risk averse. They want to optimize the rate of return on their portfolio with minimum risk. They invest in diversified assets to minimize the risk of their portfolio. Their portfolio of assets varies from low return- low risk fixed deposits to high risk-high return shares. But a smaller proportion is devoted to equities and growth schemes of mutual funds and a large proportion is devoted to low and medium risk assets. Their investments include short-term deposits, fixed/variable annuities, government bonds, mutual fund units or monthly income scheme.

Both these investment strategies are good, however you need strike the right balance depending on your age, your investment time horizon and your current financial situation. Remember, the primary objective of retirement planning is to generate regular income after retirement.

Let us assume that the person gets a regular income of a fixed amount. This amount may be sufficient to start with. But inflation can result in increased financial needs over a period of time and the regular fixed income may become insufficient to meet the needs after a period of time. Hence, your portfolio should beat the inflation so as to generate a comfortable stream of income throughout your life. This is only possible, if you take balanced approach and review and adjust your portfolio frequently.

How to determine the right portfolio mix?

You can follow a general rule of thumb (i.e. 100 minus your Age) to determine the allocation to risky assets in your financial portfolio. So, when the retirement is long way off, it is desirable to take greater risk to accumulate wealth but as a person reaches the retirement date he/she should change his attitude towards risk and adopt a more risk-averse investment strategy.

For example, when you are in your 20’s you can have upto 80% of your investments in Equities, Equity Mutual Funds or Unit Linked investments and 20% in Fixed Deposits, Bonds, NSC, etc. As you grow older allocation to fixed rate investments avenues needs to go up and market linked investments should be reduced gradually.

Failure to reduce the market linked investments as you grow older can cause severe consequences. Imagine, what will be the return on your portfolio if the share market collapses? When such a situation arises, the portfolio return reduces to zero or may even some times become negative i.e. principal loss, and then you will have to wait till the markets rises again. If the situation does not turn around in a short period, it will be very difficult for you to maintain your standard of living post retirement. Never ignore your risk tolerance.

While it is important to take greater risk early in the accumulation phase, bring down the risk exposure as you approach closer to your retirement to preserve and nurture accumulated wealth.

Liquidity of your Retirement Portfolio

After risk and return, portfolio liquidity is the important factor, which you should think of while planning for post retirement. Liquidity refers to the ability to buy or sell an asset without inordinately influencing the price at which the transaction is consummated.

Often, to preserve tangible assets such as, gold, silver jewellery, precious stones like diamonds, real estate, painting, carvings etc. maintenance cost by way of insurance and storage would need to be incurred. During the post retirement period, if this maintenance cost is draining your retirement income, you might have to liquidate them and convert them into income producing assets. Assets like real estate, other than self-occupied house may be systematically liquidated over a short period of time to make the investments liquid. Alternatively, you may consider renting out such real estate to cover maintenance costs and generate some additional income stream.

Reviewing your Life Insurance

No matter how much you have saved or invested over the years, sudden eventualities, such as death or critical illness, always tend to affect your family financially apart from the huge emotional loss. Though one of the main objectives of taking insurance is to provide financial cushion to your family for times when you are not around, but it’s not the only objective. Insurance covers the risk of a person dying too soon or live too long. Insurance helps you to build a corpus for yourself; provides you with comfortable retired life and even takes care of your lengthy medical bills.

Even after you retire, you may need your life insurance for many reasons. One important reason is to make sure your spouse will have enough income, if you pass away first. Some pensions pay reduced amounts or even nothing at all, to surviving spouses. Life insurance can provide the funds to help offset that possible loss of income.

You need to review your insurance cover regularly and take additional cover to safeguard your family. When you retire, even though your original purpose for acquiring life insurance may have changed, as your children have grown up and your home mortgage is paid, you may still have a need for life insurance. Do not drop your life insurance without first consulting with a financial planner or insurance expert. Once you lose your insurance, it may be difficult or even impossible to get insured again.

Medical Emergency Cover

With age come health problems. With health problems, come medical expenditure which may make a huge dent in your income post retirement. Failure here could lead you to liquidate your assets in order to meet such expenses, which may adversely impact your retirement plan.

Your portfolio should contain health insurance i.e. Mediclaim, Personal Accident Insurance, Hospitalisation policy, Critical illness policy, etc so as to reduce the lump sum expenditure in the event of any medical emergency post retirement. It is worthwhile to take these medical cover as soon as possible as they tend to get costlier with your age.

It is true that medical insurance provides compensation for the medical expenses incurred, but there are several limitations. Depending only on medical insurance may not be enough to take care of all medical expenses. Therefore, individuals must aim at building a separate medical corpus to supplement the medical insurance and cater to emergency requirement post retirement.

Conclusion

Ultimately, the best asset allocation for your retirement portfolio will depend on your own circumstances and tolerance for risk. Knowing your retirement needs and planning for it while you still earning can take away lots of unpleasant surprises when you retire. With some care and discipline you can build a retirement portfolio suitable for a comfortable and peaceful retirement.

Related posts:

• Portfolio diversification is the key for Retirement Planning
• How to do effective retirement planning?
• Retirement Planning – Start now, Save more, Retire rich

Your children are your pride and joy and you would like them to have the best that money can buy. As discussed in our earlier article, with a sound financial plan, you can make sure that materializing of your child’s dreams is not hindered for want of funds. Children’s insurance policies and products are designed with this specific aim in mind.

What are Children’s Insurance Plans?

These plans set out to secure you financially against the back drop of constraints such as inflation and the rising cost of education. They help you to fund various aspirations like an overseas education, extra curricular activities, sports training, supplementary vocational education, marriage celebrations, etc. by providing a lump sum amount at a specified future date.

An additional feature offered by children’s plans is that they continue to offer financial protection even in the event of the loss of the premium paying parent. This ensures that the amount envisaged is actually delivered even in the event of unforeseen eventualities.

In a nutshell these plans offer financial security to children in the form of savings combined with life insurance by paying at regular intervals so that the money is made available to your child at pre-determined stages.

Benefits of Children’s Insurance Plans :

• Children’s insurance plans enable the parents to save money for child’s future without any disturbance to the family budget. This is because the premiums can be chosen to suit the parent’s convenience.
• There are a number of options and customized products to choose from for the child’s future.
• Reversionary bonuses are usually declared by the insurance company annually and once declared are guaranteed.
• Tax benefits under Section 80C are applicable on the premium paid.
• Certain plan options also allow the plan to continue after demise of insured parent and the insurance company continues paying the premium.

Types of Children’s Insurance Plans

There are two broad category of Children’s Insurance Plans available today. They are :

1. Traditional Children’s Plans

Insurance companies offer policies such as children’s money back or endowment, which give a defined payout at a defined period.

Besides, if something unfortunate happens to you as a parent, not only does the child still get the sum assured on maturity, but the interim premiums are also waived off.

However, the return from such policies is relatively quite low, barely covering the inflation.
2. Unit Linked Children’s Plans

These Children’s insurance plan are very similar to any ULIP plan the only difference is that the beneficiary in such plans is the child. Not to mention, these plans come with a charges similar to any ULIP. Make sure you know about all the charges applicable before you buy these plans.

How to choose a Children’s Insurance Policy?

Premium

Most insurance companies offer children plans with various features at various prices. Most of these plans have riders like waiver of premium and accidental death benefit rider inbuilt in them and in cases of others you have to buy them.

But, there’s no free lunch. You have to pay for these riders.

When considering which one to buy, you should add the cost of the riders with the basic premium for the policy. Then you compare it to the premium of the policy where the riders are in-built; and then make your final decision.

Riders

Most child plans available in the market have many of the riders in-built. In others you have to buy them at an extra cost. In case of child insurance the riders are the most important parts of a policy as it will take care of the child and your child education and his/her career doesn’t have to suffer due to anything unfortunate happening to you.

• Comprehensive Health Benefit Rider Sum Assured
• Waiver of all the future premiums
• Income Benefit Rider
• Accidental Death Benefit Rider

Comparing Traditional Children’s Plans

Compare children’s insurance plans offered by all life insurance companies to help you decide the plan which suits you the best.

1. LIC – Jeevan Kishore

• Death benefit: Before commencement of risk: Premiums paid excluding the premiums for the premium Waiver Benefit. After commencement of risk: Sum Assured + vested bonuses upon the death of the life assured.  
• Maturity benefit: Sum assured plus accrued bonus plus final additions  
• Comment: Can be bought by any parent for their child less than 12 years for their bright future

2. ICICI Pru – Smart Kid Plan – Option 1

• Death benefit: Sum assured is paid and all future premiums are waived
• Maturity benefit: 30 per cent of sum assured plus Guaranteed addition plus Vested Bonus
• Comment: Guaranteed 3.5% of SA compounded annually for first 7 years of the policy.

3. SBI Life – Scholar II

• Death benefit: Sum assured plus all vested bonus is paid and all future premiums are waived
• Maturity benefit: 25 % of Sum Assured plus Vested Bonus
• Comment: Attractive rebate on premiums for Female lives and High Sum Assured

4. Tata Life – Assure Career Builder

• Death benefit: Payout as per maturity
• Maturity benefit: 40% of sum assured plus vested bonus
• Comment: Guaranteed addition of 10% of Sum Assured in case of more than 10 policy years

5. Bajaj Life – ChildGain 21

• Death benefit: 1) Below 7 years – Premiums paid will be refund without interest, 2) Above 7 and below 18 years – Sum assured with accrued bonuses 3) Above 18 years – Outstanding payouts paid as lumpsum.
• Maturity benefit: 35 per cent of sum assured
• Comment: In case of death or accident of insured during policy term, 1% of SA maximum to Rs. 10,000 paid per month till end of term of policy

6. Reliance Life – Child Plan

• Death benefit: Sum assured is paid and all future premiums are waived
• Maturity benefit: 25 per cent of sum assured plus accrued bonus
• Comment: Attractive rebate on premiums for High Sum Assured

7. Max New York – Children Endowment to 24 (Single)

• Death benefit: Refund of Premiums plus Interests plus Accrue bonus (if any)
• Maturity benefit: Sum Assured plus accrued bonuses
• Comment: Gives your child a lumpsum amount at age of 18 to support his higher education/ marriage

8. ING Life – Creating Life Child Protection Plan

• Death benefit: Sum Assured and vested bonuses.
• Maturity benefit: Sum Assured plus accrued bonuses
• Comment: Gives your child a lumpsum at maturity to support his higher education/marriage

9. Shriram Life – Vivah

• Death benefit: Sum Assured and vested bonuses
• Maturity benefit: Sum Assured plus accrued bonuses
• Comment: In case of death or accident of insured during policy term, 1% of SA paid per month till end of term of policy

Comparing few Unit Linked Children’s Plans

Unit linked Children’s Insurance plan comes with various charges applicable to any ULIP. Before you decide to buy one for securing the future of your child, make sure you understand these charges and get a clear picture of how much it will cost you on your chosen plan. Here is a list of charges applicable on Unit linked Children’s Insurance plans:

• Premium allocation charge
• Fund management charge
• Surrender charges
• Mortality charges
• Fund switching charges

There are some other charges too, such as:

• Partial withdrawal charges
• Policy administration charges
• Revival charges
• Miscellaneous charges

Conclusion

All parents dream that their child gets the best possible childhood and a safe and secure future. Yet sometimes due to sheer negligence or laziness, parents are unable to offer their children a well laid out financial platform to pursue career ambitions. Plan ahead and secure your child’s future through Children’s Insurance Plan today!

Related posts:

• Coming to terms with term insurance
• Don’t Let Lack of Funds Cripple the Possibility of a Good Education
• 5 Tips to reduce your life insurance cost

Most often we all wait till the last moment to do anything in life. Tax planning and contributing to tax saving investment is no different. During the last few weeks of any financial year we make hasty decisions to invest in tax saving instruments. In the process we end up buying products which are not right for us.

Tax planning should be done early and put in action over the entire year. This helps us in scheduling and planning our monetary outflows in tax saving investments over the entire year instead of contributing lumpsum in the last quarter. It also gives us ample time to understand and evaluate different options that are specific to your financial situation. Start your tax planning now for Assessment Year 2011-12.

Here are some simple tips for planning your taxes this financial year:

Know your tax liability

The first step is to know how much tax would you be paying in Financial Year 2010-11. If you are wondering, “how to do that?”, well you can refer our earlier post that provided a simple excel based tax calculator for FY-2010-11.

Once you know the tax liability you can start planning to optimizing your tax saving plans.

Utilize Income Tax Deductions under Section 80C

The most popular section in your tax planning is Section 80c. It provides up to Rs. 1 lacs in deductions (and another 20,000 for investments in infrastructure bonds). Investment options under this section include Employee Provident Fund (EPF), Public Provident Fund (PPF) contribution, National Savings Certificate (NSC), Long term Fixed Deposit (5-years), life insurance policies, Equity Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs), School Fees, Home Loan Principal repayment.

You can choose the best tax saving plan that suits your profile and risk appetite. Safe investors can go for assured returns Small Savings Plans while aggressive investors may look at ELSS schemes to invest.

Tip : Many of us a salaried employees and have contribution to Employee Provident Fund. For Jump starting your tax planning, deduct your contribution to EPF from 1 lac. This is the amount that you need to additionally invest under Section 80c.

This year Finance Minister has allowed a deduction of an additional amount of Rs.20,000 for investment in long-term infrastructure bonds as notified by the Central Government.  This would be over and above the existing limit of Rs.1 lakh on tax savings.

Tip : Provision for investing Rs. 20,000 in Infrastructure Bonds to maximize your tax savings in Financial Year 2010-11.

Claim deduction for Medical Insurance Premium (Section 80D)

Medical insurance is an imperative, especially in a country like ours, where the State does not cover medical costs. You should take a medical insurance cover for yourself as well as your family, irrespective of the tax deductions available.

Any premium that you pay for your, your spouse, or dependent children’s medical insurance is allowed as a deduction, subject to a ceiling of Rs 15,000. If you are a senior citizen (i.e. an individual resident in India who is of the age of sixty-five years or more), a higher deduction of Rs 20,000 is available.

If you pay for the medical insurance of your parents then you get an additional deduction of Rs. 15,000 or 20,000 in case any of your parent is a senior citizen.

If you are a senior citizen the enhanced deduction is allowed only if the premium is paid by cheque.

Tip : Irrespective of the tax benefits, medical insurance should be taken by every individual. It has a very important role in your overall financial plan and provides you cover against any unforeseen medical emergency.

Avail deduction of Interest paid on Housing Loan (Section 24)

It is smarter to take housing loan even if you have the money to buy a house outright. Home loans are one of the cheapest forms of loans available and also offer tax benefits. On the first house, interest up to Rs 1,50,000 is tax deductible.

For the second house, the entire interest without any limit is eligible for tax deduction. However, the annual value of building or land (i.e the potential of property to generate income) owned by you is chargeable under income from house property. This means, even if the property is vacant, the fair rent for that property is considered in your income and deduction of full interest on home loan is granted to you.

Tip : You will benefit if the annual value of the second house is less than the actual interest paid by you for the home loan during the year. To claim it you can specify the net amount in Income from House property taking into account, the Annual value, less 30% of annual value less any interest paid on borrowed capital to acquire, construct, repair, renew the said property.

Get HRA Exemption for Rent paid (Section 10)

Those who stay in rented house are provided relief through HRA exemption. House Rent Allowance (HRA), which falls under the head Salary, is a component that has a part of it exempt from tax liability. So, if you are getting HRA it should be ensured that a rent receipt is given to the employer to reduce the taxable portion of HRA.

The extent of exemption is calculated as the lowest of following three values :

• The excess of actual rent paid over 10% of the basic salary
• Actual HRA received
• If you live in a Metro i.e. Delhi, Chennai, Kolkata, or Mumbai then 50% otherwise 40% of basic salary received.

Tip : If you stay in rented house, provide your rent particulars to your employer so that you can get the relief of HRA exemption.

Many people have confusion on whether they can claim deduction of Interest paid on Housing Loan  as well as HRA Exemption for Rent paid. Yes, you can claim both these deductions together, provided your own property is not close to your place of work and due to which you have to stay in a rented accommodation. In such scenario you can specify your own property as self occupied and claim the deduction under Section 24. Otherwise, you can claim it by taking the annual value or the actual rent received from your own property as specified above.

Avail any other deductions allowed in Income Tax Act.

Interest on Education Loan (Section 80E)

Under section 80E, you can avail tax deduction with respect to the interest paid on repayment of education loan taken from a bank or any other financial institutions in India or worldwide, for higher education.

Charitable donations (Section 80G)

While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax. You get a tax relief if you donate to institutions approved under Section 80G of the Income Tax Act. The rate of deduction is either 50 or 100 per cent, depending on the choice of the charity fund.

Tip : There is no restriction on the amount given to charity. However, donations must be made only to specified trusts and also only donations of up to 10 per cent of your total income qualify for such a deduction. Remember to get receipts whenever you make any charitable donation.

Handicapped Dependent and Medical Treatment (Section 80DD)

Under section 80DD deduction can be claimed in respect of maintenance including medical treatment of handicapped dependents. In this case, deductions up to Rs. 50,000 or 75.000 can be claimed based on the severity.

Further deduction, in respect of medical treatment of specified life threatening diseases, is available under section 80DDB. Deduction is also available in case of a person with disability.

Conclusion

Making use of all these exemptions and deductions lowers taxable income and consequently minimizes your tax outgo.

Related posts:

• Income Tax deduction simplified
• 5 investments for last minute tax planning
• Tax Planning with Section 80C

As caring parents, providing the best for your child is priority, but rising costs often make you think twice. However such decisions should never be influenced by the lack of money, which is why you should start thinking today.

What cost Rs.5 lakhs today will cost you Rs.15 lakhs tomorrow! Will you be prepared to shell out that sort of money or will you choose to compromise on your child’s education? But as a caring parent wouldn’t you want to provide your child with the best possible education.

The best way to avoid such a situation is to start preparing from today itself! To prepare yourself you should:

Step 1 – Decide the corpus you wish to provide for your child’s future and the time when the same should be made available. While doing so you should consider various career specializations available. Also remember, that all professional courses will cost more tomorrow than today.

Step 2 – Select an investment amount that you will be comfortable paying monthly. After all you mustn’t forgo the present for the future.

Step 3 – Choose the level of protection you desire. This should be reflected in -

• the level of sum to be assured chosen by you;
• the riders you opt for with the base plan.

Some of the riders available under various child plans are:

• Comprehensive Health Benefit (CHB) rider - provides complete protection against critical illness and disability, by paying benefits otherwise payable on death.
• Income Benefit (IB) rider – pays income to your child in case of your death.
• Accident Death Benefit (ADB) rider – pays additional money in case of your accidental death.
• Dread Disease Rider (DDR) rider – Gives an additional benefit upon diagnosis of 10 critical diseases like – Heart Attack, Cancer, Stroke, CABG etc.

Your child’s future education and success depends on how well you plan today. Be prepared and everything will fall into place. One such device that can help you get started is the Aviva Educost (education cost calculator) that enables you to calculate the cost of future education and also helps you identify how much you would need to invest today to achieve that corpus.

Related posts:

• Choose the best Children’s Insurance Plan
• Demystifying common insurance myths
• Do you have adequate life insurance cover?

Penny stocks lure a large section of investors. Their acquisition cost is cheap (often in low single digits) and the upside potential is almost limitless. A mere couple of rupees or, in some cases, a few paisa rise in the stock price would double or triple your initial capital. On the flip side, purists and market pundits look down upon investments in penny stocks. And they have valid reasons to be skeptical about penny investing.

Most penny stocks are little-known companies with a poor track record of financial performance. Their business plans cannot be trusted or bought at face value, either. These companies can easily go into oblivion without any trace. This makes penny stocks risky bets in any market situation. You may make millions or end up forfeiting your entire capital.

But optimists consider risk as the other side of return. Greater the risk, larger is the reward. The returns on penny stocks, however, depend on the extent of diversification. This segment has a high mortality rate and the only way to reduce stock-specific risk is to start with a larger portfolio.

However, you can make a lot of mistakes if you’re not careful. Consider following points while preparing your penny-portfolio :

1. Do your own research : The low price of penny stocks can make it more tempting to invest in one or more stocks without doing your research first. Research is vitally important because you need to know whether you are investing in a good or bad quality company. Penny stocks do not appear on the main stock exchange and the companies may well be less established as a result. Don’t risk investing in anything until you have done your homework on it first.
2. Credible source of information : Watch your sources of information too. There are lots of websites online that give out free tips and advice on which stocks to buy and which ones to sell. Always ask yourself why another person should recommend something to you for free. Trust your own instincts and knowledge more. This comes back to doing your own research once again – you can’t get out of this aspect of trading penny stocks if you really want to stand a chance of making a profit.
3. Not every penny stock can make you fortunes : Another mistake is to think that profiting from penny shares is easy. You might just pick a good company that is about to enjoy massive success – but it doesn’t happen every day by any standard. Never assume that trading in penny shares will make you your fortune – you could lose a lot of cash through thinking it is easy.
4. Build a large enough portfolio : Diversify your risk and build a large portfolio of carefully selected penny stocks. Although the portfolio will have some losers, whose value might have become zero, the few stocks that eventually turn into multi baggers will significantly offset such losses and give superior returns.
5. Know your risk appetite : Always remember that penny shares are risky propositions. You can just as easily lose every penny you invest as you can make money. So before you buy into any particular company, make sure you are happy with kissing goodbye to that money should something disastrous happen. Save for a while to build up a pot you don’t mind losing if need be – but don’t bet the money you can not afford to loose on trading penny stocks. Ignoring your risk appetite could be disastrous.

You should also make sure you don’t rely on a broker to help you pick your stocks. Your own decisions, instincts and research take precedence over everything else, so make sure you remember this.

Related posts:

• 5 tips to select stocks for investment
• Stocks Markets – Current trends and the way forward
• Investing in Stocks, the Election-09 factor

Today, March 7, 2010 Personal Money has successfully stepped into its second year. We would like to take this opportunity to thank all our readers for stopping by our site. It was a good first year where we had received excellent feedback from our readers.

I take this opportunity to present some of our articles published during the last one year that helped you to manage your personal money better. One such article was 10 Ways to Become Financially Wiser

The most popular Personal Money tool was the Income Tax calculator which we prepared as per prevailing Tax proposals. The latest tax calculator based on Budget 2010-11 proposals is available at Income Tax Impact Calculator – Budget 2010-11. Other personal tax articles also generated good response in terms of views, specially Income Tax deduction simplified.

At the start of 2010, we presented a list of Top 10 Mutual Fund (ELSS) schemes to save taxes which again was received very well by our readers. Our series of articles on Mutual Fund provided a ready reference to readers interested in investing their money in them.

Last year when every one was terrified with Credit Crisis even if they didn’t knew what it meant, we presented a simple explanation and tried to asses the Impact of global financial meltdown on us.

Cricket is indubitably the most popular sport in India. We shared very interesting analysis that correlates your investment and financial planning strategy with that of IPL T20 cricket game in IPL T20 and Investing – Interesting similarities

To our surprise, Retirement Planning articles also generated better than expected response. Considering the young reader profile of Personal Money, it was heartening to see that people are become aware and more responsive to the need of proper retirement planning. Some of our articles in this series worth mentioning are How to do effective retirement planning?, Portfolio diversification is the key for Retirement Planning and Plan for continued income flow post retirement

Many readers asked us to provide them details of ULIP investments. The sheer volume of request regarding information on ULIP prompted us to analyze and write about The ULIP euphoria – is it justified?. We also felt that a lot of our readers were cheated by agents. We shared the details of tactic used by these agents and tried to caution our readers through our article Is your agent mis-selling ULIPs to you?

We would also like to thank my co-bloggers Manish Misra and Madhur Batra as well as other blogger friends Mohammad Khalid of Bell the Bull, Manish Chauhan of Smart Investor and The TIP Guy of The Income Portfolio for their valuable suggestions and feedbacks.

Special thanks to our commenters who had actually motivated us to come up with more posts. We try to respond to your queries as soon as possible, however we apologize if your comments or requests sometimes are not met by us due to time constraints. From now on we will ensure to increase our response frequency a bit higher. So keep sending your comments, suggestions, queries to us.

Thanks once again to all our readers!

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The most important factor that a common man look forward to in any Union Budget is the Direct Tax benefit that the Finance Minister announces. In the Budget 2010-11, the Finance Minister, didn’t dissappoint the common salaried class in terms of Income Tax benefits.

He quoted Kautilya’s following words :

“Thus, a wise Collector General shall conduct the work of revenue collection…. in a manner that production and consumption should not be injuriously affected…. financial prosperity depends on public prosperity, abundance of harvest and prosperity of commerce among other things.”

Following the essence of these words Mr. Pranab Mukharjee announced  Direct Tax Proposals, such as :

Direct Tax Proposals of Union Budget 2010-11

• Broadened the Income Tax Slabs (see the revised tax slabs below).
• Income tax return form, SARAL-II, to be made simple and user friendly for individual salaried taxpayers for the coming assessment year.
• Allowed a deduction of an additional amount of Rs.20,000 for investment in long-term infrastructure bonds as notified by the Central Government.  This would be over and above the existing limit of Rs.1 lakh on tax savings.
• Extended the provisions of Section 80D, that allows deduction under the Income-tax Act for contributions to health insurance schemes, to include contributions to the Central Government Health Scheme also as a deduction under the same provision.

Tax Slabs for Financial Year 2010-11

Whether these Direct Tax proposals are good enough for you, check out yourself.

Download Income Tax Calculator FY 2010-11

Although, care has been taken to validate the logic of the calculator by testing it with various scenarios, however, “To err is human, to comment and get the error rectified is divine“.

So, please comment in case you find any error in the calculator so that it can be correct, also if you like the calculator or have suggestions please feel free to comment. This will encourage us to make and share many more useful personal finance tools and calculators with you on PersonalMoney.in

DISCLAIMER : This calculator is to help you find out your personal indecative total tax liability. It may not cover all scenarios of Income, Exemptions, Deductions, etc. You are advised to consult any qualified chartered accountant or tax consultant to know your actual Tax Liability.

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In one of our earlier article, Personal Money, explained the Phishing modus operandi. Another phishing scam has surfaced which claims to be from the Income Tax Department and promises to process your refund within 24 hours of filling a form.

We all have been warned against giving out sensitive personal information such as credit card numbers, PAN card details and other confidential data via the internet. But, when you get a mail from someone who claimed to be from the Income Tax Department, even suspicious people may be inclined to comply.

In the past few days, tax payers have received emails with subjects like “tax refund” and “seeking refunds” from unauthorized senders. These mails ask you to provide them with confidential information such as details of your income, PAN card and credit card numbers and other financial details.

In a press release dated as back as 6th October, 2009, Income Tax Department clarified that it does not send e-mails regarding refunds and does not seek any information regarding credit cards of taxpayers. Department also cautioned taxpayers that they should not respond to such mails and if they do so it would be at their risk and responsibility. It has advised taxpayersto avoid opening, complying or replying to such emails.

The Income Tax Department assures that neither its website nor its intranet data has been hacked or compromised. Still, such emails are being circulated even today.

How to avoid the scam

• Do not download any attachment you are not absolutely sure of.
• Do not reply to such emails
• Never give out any financial details
• Identify these emails as spam in your inbox so that the next mail that you receive from the same sender, will be sent directly to the trash or junk folder.

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You would agree that debt consolidation companies have gained increased prominence owing to the fact that they have helped many debtors to become debt free. Debt consolidation is undoubtedly a good debt solution for you except that you have to play your part too. Once you enroll for a debt consolidation program, it is important to take the process to completion and not leave it midway.

You could seek professional assistance only when you are in a financial mess. Sometimes I personally feel that I don’t mess up my  finances intentionally, but rather they just happen. Under such circumstances I would suggest  you to  take help of a credit counselor who can advice with ways to regain financial stability again.

I told my friends to consolidate multiple debts into one  with the help of a debt consolidation company, thereafter the firm you are hiring will take care of your debts. Remarkably the  company will negotiate with your creditors on your behalf and convince them to reduce rate of interest. I got mine lowered this way and happily ended up paying  a lesser amount each month. You will also get a repayment schedule that will enable you to keep track of your payments and your payments become more organized and structured.

The debt consolidation companies may be for-profit or non-profit making firms. Once you enroll for a debt consolidation program, make sure you don’t miss your payments again. This can be very troubling and can land you in serious trouble. Studies reveal that approximately 30% to 60% debtors in United States don’t repay their debts.

However, lately there are many debt consolidation companies that have come under the spotlight. I would always avoid such companies because they are not worth of what they claim to be. The Federal Trade Commission, state regulators and attorney generals have received several complaints from the consumers that there are few debt consolidation companies that are taking debtors for a ride. These debt help firms promise you that they will be able to help you get out of debt but in reality they fail to live up to their promises.

I almost got myself into their trap because I learn’t  that in  majority of the cases, the debt consolidation firms charge very high upfront fees; they make verbal promises and avoid writing down their services in paper. The incidence of debtors dropping out of the program isn’t uncommon and when they do so, debtors lose all their cash.

However, not all debt consolidation companies operate illegally. Before I hired a the services of a debt consolidation company, I made sure to  check the Reliability report of the Better Business Bureau. This is  a must!  All the best for your financial recovery!

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