My Journey To Billionaire Club

Top 5 Family Health Insurance Plans

noreply@blogger.com (Asav Patel) — Thu, 29 Mar 2012 13:25:00 +0000

Having family health insurance is very important for you and your family. It is not only important to have family health insurance, but an affordable plan.

• One plan that you might take into consideration is a comprehensive family health insurance plan. This is one affordable plan that covers prescriptions and doctor visits which comes in handy especially if you have a large family. When considering a health plan for your family, it is important to consider their needs as well as your own needs before making a decision. Family health insurance plans can be less costly than private medical insurance plans.

There are different types of family health insurance plans that you can choose from. It is also important to keep in mind that some of these plans might not accept pre-existing conditions. If this becomes the case, then a family health insurance plan can be offered to the entire group at a more expensive rate. It is important to choose the right family health insurance plan whether this means having several members sign up with different family health insurance carriers or having everybody under one plan. It is important to compare all of your options regarding these plans.

• One affordable popular plan is the Health Maintenance Organizations Plan generally referred to as HMO. This plan has a network of providers that you must use. However, you do have the option of using out-of-network providers, but you will lose the benefit of the discounted rates that are negotiated by the HMO health insurance plan.

• Another plan which is similar to the HMO plan is the Preferred Provider Organizations known as the PPO Plan. This plan offers more freedom than the HMO plan. One great thing about this plan is that you are able to visit a specialist without having to get a referral. Even though the PPO Plan comes with higher co-pays and deductibles, this plan has a comprehensive network of health care providers and you are able to use one that is outside of the plan.

• Another plan that is quite affordable is the Health Savings Accounts. The premiums are usually lower and this plan is tax exempt. This plan gives you more control and responsibility. Whichever plan that you decide to choose, it is important to make sure that it is the right one for you and your family.

• One essential plan that most families should invest into is a Life Insurance Plan. This plan pays out a certain lump sum amount in the event of an individual’s death. Every family should consider having this plan. This plan offers three types of life insurances such as term life, whole life and universal life. However, the term life plan is the most affordable one because it offers coverage for a set time period such 30 years or more.

Eddie Adams is a Content writer with an interest in topics relating to health, finance, Insurance, tourism and green living. You can follow him @thefreshhealth on Twitter :-)

3 Top Questions To Ask Potential Mortgage Lenders

noreply@blogger.com (Asav Patel) — Mon, 12 Mar 2012 15:05:00 +0000

People about to buy a house rarely buy the first one they see. Most want to look around and see what the local market has to offer before settling on one. Similarly, you should never settle for the first mortgage lender you find. Mortgage lending is a very competitive business, so shopping around could net you a better deal. Here are the 3 top questions to ask potential mortgage lenders that could save you a bundle of money.

1. What is the interest rate and how soon can I lock it in?

Interest rates can vary from day to day. In some cases, that variance can be quite great. When a mortgage lender gives you a quote, it is based on that day's prevailing rate. If you wait and shop around, you could lose that rate and get a different one should you decide to go with them later. Even a quarter of a percentage point, over the 30 years of a mortgage, can add up quickly.

Ask what the current interest rate is and how soon you would be able to lock that rate in. There may be a cost involved, such as 1 point. A point is 1% of the loan amount. So, if your loan amount if $100,000, a charge of 1 point would cost you $1,000. Some lenders charge zero points for a rate lock.

Locking the rate in will guarantee that if you take a few days to make a decision, you won't end up paying more should you go back and choose that lender, even if interest rates have climbed.

2. Are there prepayment penalties?

In the event that you should pay off your mortgage early, some lenders have language built into the contract that says they can collect prepayment penalties. These penalties can be up to six months of unearned interest that you will have to pay to them simply for paying your mortgage off early.

Early payment doesn't just include suddenly paying the balance of your mortgage off in cash. Should you decide to refinance later, that is technically considered paying the original mortgage off, so the prepayment penalty can kick in. If you sell the home before the mortgage is paid off, that could also result in the enactment of the prepayment clause.

Some states have made it illegal to have prepayment penalties, so check and see if that is the case where you live. If prepayment penalties are allowed, ask the lender if they charge any and how much it would cost. Also keep in mind that if the lender does charge prepayment penalties, the trade-off is that some may require a lower down payment or give you a better interest rate.

3. Will You Guarantee Your GFE?

GFE stands for Good Faith Estimate. In the mortgage business, lenders are required to give you a good faith estimate in writing that gives you a rundown of your total cost. This includes closing costs, which can be expensive.

A GFE does not have to be guaranteed by the bank. Therefore, if you come back a day or two later to sign, the estimate could have changed. That is why you want them to guarantee the GFE, so you can leave with peace of mind that you know the total even if you need a day or two to think it over.

If the bank refuses to guarantee the rate, you can leave and find someone else who will. There are many banks who will guarantee GFEs. It is usually better to go with someone who guarantees their product rather than someone who won't.

Fred Mauz is a financial blogger who writes about a variety of current topics including the wounded economy and the state of refinance mortgage rates. He enjoys learning as much as he can about Forex trading as well.

JagoInvestor Book By Manish Chauhan - Review

noreply@blogger.com (Asav Patel) — Wed, 15 Feb 2012 11:41:00 +0000

I am really happy to announce that, Manish Chauhan of JagoInvestor Blog has given me the opportunity to publish a review about his newly launched hard cover book JagoInvestor - Change your relationship with money.

What's the book is all about?

Jagoinvestor is as the name suggests, its the book about changing your relationship with your money. In layman's language, this book is all about basics of personal finance and financial planning related advises. This book is not about earning money but its all about how to manage your hard earned money. Its all about how to handle your money wisely.

If you are searching for some professional level of stock market or commodity market trading or investing book than this book is not for you. This book is for the people who want to increase their basic financial literacy by several folds as the book is written in very simple language that even a school going kid can understand its lessons and advises and change their financial life.

Believe me, if you are in your twenties and early thirties and this book is in your hand than probably it has changed the financial future of your entire family tree.

Good News

Now, the good news is that - the book is written in very simple and lucid language and you will gain lots of financial knowledge from its each and every page.
Another great news is that the book is full of diagrams, charts, tables and animations. This helps us to understand the subject very well.

As there is an old saying that - a picture is worth of 1000 words. And this old saying exactly applies to this book. Lots of diagrammatic illustrations and flow charts make this book really easy to understand.

Another good thing about the book is that, at the end of every chapter the book has action plans and question papers. The book has taken care that after reading each of its chapter you just don't become a couch potato but actually use your mind and take the action.

What's Inside the book?

As I have already told in the starting of the article that, the book is all about basics of personal finance and financial planning related lessons.

The book starts with extremely important financial advise - Start (investing) early. From the first chapter only, the book has emphasized the power of compound interest and benefits of starting early.

The book is divided into 7 chapters.
And each chapter contains lots of basic personal finance advises. You will amazed after reading these advises that how simple personal finance is.

In the Chapter 5: Change your relationship with money, there are almost a dozen of basic personal finance lessons. The most touched one lesson is - Time is the new Money.

Manish says that,

The so called 'busy' people have no time for their personal finance but they somehow find time to be on various blogs, chats and social media sites. Here you are wasting your time in small installments and you are not even aware of it. Always remember that NO capital is getting generated from these activities. No wealth is getting generated. There is NO increase in your bank balance due to it.

The above is the most touchy thought. In the internet world, the modern Web 2.0 applications actually consume your time. The same time could be utilized to gain immense financial knowledge or immense success.

The book has also chapters on goal planning, setting your financial goals, considering inflation while calculating your financial goals and many more things with diagrams and figures.

Is JagoInvestor-Change your relationship with money worth reading?

Yes. If you are a financial newbie and don't know anything about basics of personal finance. Financial literacy is not given to us in any part of entire India and that's why when we leave our schools and colleges, we have hard time to manage our money. This is because much little has been taught to us about the most important element of our life - Money.
This book is for every Indian (or NRI) who want to do successful financial planning for their various long and short term financial goals like your retirement, child future planning, child education, marriage and many others.

No. If you already have some basic level of financial education and you have already done a successful financial planning for your financial future (And if you think that you have done it correctly...!!!).

How to Buy this Book?

The best way to buy this book is - Online according to me. Just visit Flipkart.com and buy this book and the book will be delivered at your home.
If you don't want to buy it online, visit your nearest Crossword book store or some other reputed book store. If your nearest book store does not have this book, request them to keep this book in their store and they will arrange for this book for you.
So getting this book in your hand is not a big deal.

Price of the Book

The Hard cover printed price of the book is Rs.499 per hard cover copy which is I think a very reasonable price. (You won't believe it but I have literally spend thousands of rupees per hard cover copy for some foreign personal finance authors like Manish.) The binding of this book is very good. So this book will remain with you a long time.
You can also think of giving this book as a present to your family and friends.

Update:

One request to Manish.

Manish kindly send the FREE books to the readers with your signature, date and time on the first page of the book. This is a good practice.
When I received your hard cover book for FREE, I was expecting your signature on the first page of the book.
My request to you is kindly send the book with your signature to the people who participate in the following offer by Moneysights.com

http://www.jagoinvestor.com/2012/02/free-jagoinvestor-book-by-moneysights.html

Say No to Readymade Pension Plans; Say Yes to Customized Retirement Planner for India

noreply@blogger.com (Ramalingam K) — Thu, 09 Feb 2012 11:56:00 +0000

Readymade Pension Plans/ Retirement Plans:
The existing pension plans/ retirement plans in India are from the insurance companies. They are available in the form of traditional products or in the form of ULIP schemes.
Indian Traditional Retirement Plan:
The traditional pension plan/retirement plan schemes from Indian insurance companies are expected to deliver only 6% to 7% CAGR as they are allowed to invest only in conservative avenues.
This 6% or 7% is not sufficient to beat inflation.
Indian ULIP Retirement Plan:
The ulip pension/retirement plans have huge front loaded charges. They also have higher regular running expenses and fund management expenses which pulls down the net return. That’s why market has rejected these products and they have become failures.
Customized Retirement Planner for India:
As a prudent investor, you should not rely on a single product or scheme for your retirement planning. A comprehensive and customized Indian retirement plan should consist of a bundle of schemes and not a single scheme.
Also you need to avoid schemes which deliver lesser return and schemes with huge charges. You need to select a combination of schemes which as a combination can deliver a decent inflation adjusted returns with low charges.
Schemes for Pre-Retirement Planner in India:
A combination of Term Insurance, Mutual Funds, and PPF will help you in creating a better pre-retirement planner in India.
Term Insurance:
In case of any mishappening to you, your spouse’s retired life needs to be secured. This can be protected with adequate term insurance. Online term insurance policies are cheaper by 50% to 60%. So opt for online term insurance instead of an offline term insurance.
Mutual Funds:
Equity mutual funds play a vital role in delivering positive inflation adjusted returns. Short term and Medium term debt funds are better alternatives to fixed deposits as they can deliver better post tax return.

PPF:
PPF delivers 8.6% tax free return. It has got a lock in of 15 years. One can save upto Rs.1 lac p.a. Safety and its tax free status makes this product a compelling option for an Indian pre-retirement planner.
Schemes for Post-Retirement Planner in India:
A combination of schemes like POMIS, Senior Citizen’s Savings Scheme, Bank FD, Mutual Fund MIPs and Debt funds could be considered for creating a post-retirement planner in India.

Creating an Indian Retirement planner
We have discussed enough about why should we have a Customised Indian Retirement Planner in the place of a readymade pension/retirement plan. Let us think about how to create a comprehensive and customized retirement planner for India.
1. Lifestage:
In this step, as an Indian retirement planner, you need to answer two questions. One is “How many years from now you are planning to retire?” and the other one is “ Your Estimation of Post-retirement years”. Studies reveal that the average life expectancy of an Indian is 75 years. But it is advisable to assume 85 years as your life expectancy so as to make sure that you will be covered enough during your post retirement.
2. Expected Retirement Expenses:
Again in this step you need to have an answer or 2 questions. The first one is “what will be retirement expenses in today’s cost of living”. Research reports show that approximately 70% of your current expenses will be your retirement expenses. The second question is “what would be the expected rate of inflation on these expenses”.
3. Expected Retirement Income:
The first question to be answered is “What is the expected amount to be received at the time of retirement from schemes like EPF, superannuation, pension commutation, gratuity?”. The second question to be answered would be is “What is the annual income you expect from the sources like pension schemes, rent, royalty?”.
4. Existing Investments:
“What is the current value of the investments made towards retirement?” and “What is the expected return from these investments?” are the questions to be answered in this step.

5. Working out the Retirement Planner:
We are going to work out the retirement planner in this step with the answers from the earlier steps.
a) You need to find out the future value of the retirement expenses with the present value of retirement expenses, number of years to retire, and the inflation assumed.
b) The expected retirement income by way of rent, pension, royalty need to be deducted from the retirement expenses (calculated in the point (a)) to arrive at the net retirement income to be generated from the retirement corpus.
c) Then the retirement corpus needs to be calculated by taking into account the net retirement income (calculated in the point above point), number of retirement years, inflation assumed post-retirement.
d) The retirement benefits like pension commutation, gratuity, superannuation, EPF needs to be deducted from the retirement corpus (calculated in the point (c)) to arrive the net retirement corpus required.
e) The monthly investment required to accumulate this net retirement corpus needs to be calculated taking into account the existing investments, and the rate of return from the investments.
The detailed approach for creating a comprehensive and customized Indian Retirement Planner is well explained in the above five steps.
Role of a Financial Planner in Creating an Indian Retirement Planner
• A professional financial planner will be able to take into account ‘the rate at which your income grows’ to decide the monthly investment towards the retirement corpus.
• Also the financial planner will be able to decide the asset allocation for your portfolio based on the required rate of income to accumulate the net retirement corpus.
• The financial planner will be suggesting you the right mix of schemes for your pre-retirement planner and post retirement planner.
• Also the professional financial planner will be able to tell you the required life insurance coverage and the health insurance coverage and when you need to opt for health insurance coverage.
• Periodical review on the retirement planner has been conducted by the financial planner so as to accommodate the changes and deviation from the original retirement planner.
You can be a “do it yourself” Indian retirement planner or “seeking professional assistance” Indian retirement planner, the above points will help you in having a happy and peaceful retired life.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (http://www.holisticinvestment.in/mutualfund-sip) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

Best Mutual Funds to buy in 2012

noreply@blogger.com (Mayank Gupta) — Sun, 05 Feb 2012 10:11:00 +0000

If you have invested in mutual funds two or three years back and feel regretful after looking at the underperformance of mutual funds vis-a-vis fixed deposits. In such a case, you need to understand one point. Equity or equity linked products like mutual funds doesnt offer guaranteed returns like fixed deposits do. Secondly, one need to have 3 to 5 year investment horizon and follow a systematic investment approach where you can average your investments at lower levels of stock markets also.
In this article, I am going to discuss some of the best equity mutual funds which can offer good returns in next 3-5 years. Any fund which holds more than 65% allocation in equities is known as equity fund.

Best Large Cap Funds are HDFC Top 200 Fund, ICICI Focused Bluechip Fund, Fidelity Equity Fund, DSP Black Rock Top 100 Fund.

Among the multi cap funds category, I personally like HDFC Equity Fund which is one of the oldest fund in the mutual funds. Mutual Funds with around 50% allocation to large cap stocks are termed as multi cap funds. Reliance Equity Opportunities is a another good fund in this multi fund category.

If you are looking to invest in monthly income plans in 2012, you may choose HDFC MIP long term which is a consistent performer in this category.

Among the balanced mutual funds, I have no doubts to choose HDFC Prudence Fund, although it is facing tough competition from the fund of same fund house, HDFC Balanced Fund

This article is written by Mr. Mayank Gupta who blogs at WealthBazaar and writes on mutual funds india

To be or not to be in equity

noreply@blogger.com (Ramalingam K) — Thu, 02 Feb 2012 06:02:00 +0000

Are You a Lender?
A study revealed that only 47% of Indian households had bank account. In addition every 3 out of 4 households had a quarterly bank balance of only Rs.5000. With the recent savings bank account de-regulation many banks have raised their interest rate by 1%. But households would not benefit much, as banks could charge increased transaction fees to offset increased cost, and also the additional interest income from savings account is negligible.
A further study has revealed many other interesting facts. Most Indians prefer to be lenders and not owners that have enterprise.
We tend to play safe and prefer to be lenders by investing in fixed deposits and debentures of banks and companies. Investing in fixed deposit or debentures gives us a fixed interest. The bank in turn lends money to others for interest and makes a profit on the difference between the borrowing rate and lending rate.
Do you want to be an owner?
You can be a lender by investing in fixed deposits of SBI. Also you can be a part owner of SBI by investing in its shares.
As a part owner you would not get a fixed return in the form of interest. Since you own the company partly, you would share in profits or losses. You would get a part of the profits in proportion of the shares owned by you. Owning means risk-taking with the chance to get higher returns than lending to the bank or companies by making fixed deposit with them.
Suppose, Tomorrow Tata motors comes out with 12%interest paying debenture, what will be the response? There will be a huge response. It will definitely be oversubscribed. All investors will not get the allotment.
For a moment, just think. If TATA motors was to pay 12% interest to debenture holders, then it need make more than 12% with the borrowed money. Will you benefit more by being a lender (debentureholder) or part owner (Shareholder) of TATA Motors?
Lending or owning?
We as Indians should be proud to be a part of a developing country. Owning would give us an opportunity for long term capital appreciation and growth. However it is best to understand that the Sensex may fluctuate, but an increase is definite over a period of time.
In the last 10 years, sensex gas grown at 17.79% CAGR. That means, if someone could have invested Rs. 1 lac 10 years back, it could have grown to 5.14 lacs. In the last 10 years one third of diversified equity mutual funds have delivered a CAGR of more than 25%. That means if someone could have invested 10 years back in these mutual funds Rs.1lac, it could have grown to Rs.9.31 Lacs.

So the coming decade post 2011 is the golden period for owning. This period would help the so called middle-class people to build wealth. With the middleclass aspiring for quality education for children, quality healthcare for their family and a decent lifestyle after retirement, owning equity is the only time-tested means to get a decent inflation adjusted returns. So we need to get our long term perspective right and start owning equities.
Asset allocation:
Owning and investing in shares means creating wealth with a long term perspective. But balancing the way we invest matters.
First, we need to allocate some amount of money for risk coverage. This could include money set aside for insurance, medical insurance and critical illness coverage. Next we all need to set aside money in liquid sources as savings accounts / bank deposit / liquid funds that would come handy in contingencies like loss of job and sudden illness. Then money required for short and medium term needs has to be set aside in debt investments.
Once this is done you are free to buy equities and build wealth. Equities can beat out all other investment categories in the long run. Equity is one of the few investments which can give you a positive return after adjusting for inflation.
Last but most important, feeling motivated that you are an owner would make a significant impact on the way you multiply your wealth. It would also give you the positive spirit and affirmation to stand by your decisions during the downs of the economic market.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

Leak Proofing your Personal Finance to build Wealth

noreply@blogger.com (Ramalingam K) — Thu, 02 Feb 2012 06:01:00 +0000

Many have a tendency to complain about inflation, taxes and EMI’s as deterrents to saving and investments. But the question is are we making a conscious effort to save and control spending? Do we have any financial leak and are we ignoring them?
My intention is not to confuse, but to emphasize that you need to fix these leaks. So that you can create and build wealth that can last for a lifetime.
Arun, a marketing professional earning Rs. 24lacs per annum post tax was surprised how his friend Girish who earned just Rs. 18lakh per annum and having similar family conditions could save and invest. Taking Girish into confidence he explained his problems. Girish gave him a patient and empathic hearing. Girish explained where Arun spent unnecessarily or created financial leaks and how these leaks could be plumbed. This could make Arun feel financiallt fulfilled in his life.
The financial leaks:
In addition to his necessary expenses, Arun spent a lot on things that were unnecessary and unhealthy. Some of the financial leaks or avoidable expenses included his smoking and drinking expenses. Since he belonged to the upper status of society Arun believed that drinking and entertaining his friends and colleagues with foreign liquor at least once a month was essential. This even took up about Rs.1.5laks to 2lakhs of his annual income.
In addition Arun dined in star hotels at least once a month, with dining out in other restaurants at least twice a week. This took up about Rs.1.5laks annually. The family believed in shopping in expensive malls and watching movies in multiplex that cost him about Rs.300000 per annum. In addition there was the yearly recreation and other lifestyle expenses.
Method of financial plumbing:
Girish emphasized to Arun to cut down on his cigarettes and alcohol to not only save money and invest, but also to care for his health. In addition Girish suggested that he find other healthy ways to relax like doing deep breathing, meditation and relaxation exercises daily. Next he suggested that he entertained his friends in more healthy ways and minimized his visits to star hotels and restaurants for a meal.
He told Arun that dining at home, experimenting on their new favorite recipes. Cooking together as a family provided the togetherness and helped to get the family’s cooperation in meeting the savings goals. Shopping just for essential needs, with entertainment in theaters or watching videos at home instead of visiting multiplex theaters saved money on tickets and in travelling to these theaters that were on the outskirts of the city.
I am sure we all could relate and find some that could identify with our spending habit patterns.
Your excellent life balance sheet:
Just have a look at how fixing financial leaks could help:
 Your monthly unhealthy expenditure of Rs10000 on alcohol, if invested at 12% would give you a corpus of Rs. 23, 00, 386 in 10 years and Rs. 98,92,553, in 20 years.

 Next your unhealthy monthly expenditure of Rs.2000 on cigarettes will grow to
Rs.4, 60, 077 in 10years and Rs. 19, 78, 511 in 20 years at the same rate of growth!

 Similarly, your extra unwarranted expenditure of watching movies at multiplex and shopping in malls of Rs.5000 each month would grow to Rs.11,50,193, in 10 years and to get Rs. 49,46,277 in 20 years at the same growth rate!

 Cutting on extra dining out expenses of just Rs.5000 per month could accumulate Rs. 11, 50,193 and Rs. 49, 46, 277 in 10 years and 20 years at the same interest rate!

 Aren’t you surprised this amounts to 50 lakhs in 10 years and 2.17crores in 20 years with a mere cutting Rs.22,000 a month? You are more healthy and financially sufficient all your life!

 Plumbing some other financial leaks switching off fans, heaters, air-conditioners and other electric and electronic appliances when not in use would help make savings and the energy crisis!

 Avoiding financial leaks with avoiding the use of credit card unless very necessary would help avoid payment of high interest. Detesting the idea of just making payment of minimum amount on credit card outstanding balances is one of the worst financial leaks. This applies also to giving priority to paying off low interest loans in favor of high interest loans.

 Next avoiding the financial leak of paying high interests paid on loans, with earning lower interests in savings accounts and fixed deposits is important.
Conclusion:
Hope you are set ready to fix your financial leaks and to channellise the extra savings in a fruitful investment option. Here’s the road map to riches. Fix your financial leaks; get extra savings; invest the extra savings properly; become wealthier.

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

Financial Planning Lessons from Republic Day

noreply@blogger.com (Ramalingam K) — Tue, 24 Jan 2012 12:21:00 +0000

Independence Day
India obtained its independence from British Rule on 15th August 1947. India became independent and wants to develop and prosper with its own decisions.
Constitution
Though we are independent, we were not having our own constitution. Without constitution it is difficult to take the right decisions for growth. So we needed our own constitution which will be the principles and guidelines, based on which we will be able to take the right decisions at the right time. Constitution also deals with the procedures and methodology of taking decisions.
Republic Day
The Constitution of India came into effect on 26th Jan 1950 which we call it as Republic Day. Since 1950 we were able to continuously grow with the guidance from our Constitution. Without an effective constitution, this exponential growth could have become impossible.
Amendments
So far we have made 96 amendments in our constitution in the last 62 years. Amendments make the constitution more dynamic and implementable in the changing times.
Financially Independent
You will be financially dependent on your parents till you complete education. Once you get a job you will become financially independent. You can take your own financial and investment decisions. You may want to financially grow and achieve financial goals like buying a car, buying a property, children education and marriage, and having a comfortable retirement.
Financial Constitution
Do you have your own financial constitution? That is you need to have a set of financial principles guiding you to take the right financial and investment decisions. Without these guiding principles it is difficult for one to financially grow and achieve financial goals. This financial constitution or financial plan details the step by step procedures and methodologies of taking sound financial and investment decisions.
Illustrating a case:
Rahul would like to retire in 25 years. He would like to have (when retiring) investments which can generate lifelong, the equivalent of Rs.50000 per month and additional Rs. 2 lacs per annum at today’s costs.
A Mediocre Approach:
Rahul may choose invest now and then. He may contribute Rs.3000 in one month, Rs.15000 in another month. He may skip investments at times. So his financial picture will not be very clear. He will not know how much he will be accumulating when retiring. He will have insecurity throughout.
Financial Planning Approach:
Financial planning approach has got some principles and guidelines. These principles and guidelines are like a light house for a ship. They give you the right direction at any point in time.
Investment Principles and Guidelines in Financial Planning Approach:
1) A good investment need to generate a decent inflation adjusted return.
2) Not investing in risky avenues like stock market is also riskier.
3) When doing trading, you are not investing.
4) Asset allocation is a proven strategy to reduce the overall risk of the portfolio. Periodically rebalancing the assets will enhance the potential of wealth creation.

In the financial planning approach, the situation will be detailed with more facts. As you have well established procedures and methodologies in financial planning, you will be able to do a sound plan and course of action to be taken to achieve the financial goals.
Present Age 30
Retirement age 55
Life expectancy 85
Expected Annual Income
(Post Retirement in today’s value) 800000
Inflation 6%
Pre-retirement return 12%
Post-retirement return 8%
FV Expected Annual Income 3433497
Retirement Corpus 79582501
Required Annual Investment 596866
Required Monthly Investment 49738

If Rahul is able to invest Rs.49738 per month, he will be able to accumulate the retirement corpus easily.
Alternatively Rahul can start with Rs.22000.per month, and increase the contribution every year by 10%. Even in this method he will be able to accumulate enough towards his retirement.
Amendments Vs Review:
Financial planning reviews are what amendments to a constitution. When there is a change or deviation from our original plan, we need to do a review to control the change. The reviews of financial plan accommodate the changes and deviations and make the whole plan achievable.
When celebrating the Republic Day of our country, why don’t you create your own financial constitution /financial plan for a better prosperity?
Long live Republic.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

Principles and Decision-making for wealth creation

noreply@blogger.com (Ramalingam K) — Mon, 02 Jan 2012 07:11:00 +0000

Whenever people have surplus money, they want to invest. When they invest, they just want to act or execute. They don’t want to spend time on understanding the product and various investment strategies. They would like to take investment decisions without doing any homework. There is no plan of action. Their attitude is “I have surplus money; just tell me where to invest”.
Misselling:
These kinds of investment decision making will make you fall prey for misselling. As you are not interested in doing the homework and if someone comes with a long chart and calculations for 20 years, then you may find it interesting and end up buying products like ULIPs. When you realize that you have invested in a mediocre product, you will blame the agent or broker and not yourself and your wrong decision making approach.
Market Moods:
When you just want to act, your investment decisions will swing based on the market moods. If the stock markets are highly volatile and it is comes down day by day then you may think that instead of investing in stock market investing in debt funds are fixed deposits are safe and wise. If the stock market goes up and everyone is investing in the market including your driver, then you may think it is opt to invest in shares or equity funds. So in this case you will never buy low and sell high. In fact you end up buying at peak and avoiding the market when the share prices are low.
Aggressive Trading:
Blindly, some investors believe that by doing aggressive trades in shares and derivatives are the quick way to make money in the stock market. They enjoy their higher degree of involvement with the stock market. They feel very happy about the few successes in the stock market which give them comfort in accepting many losses. They don’t go back and calculate how much they have made or lost in a trade; what is the total profit or loss they have made in a particular year. These investors will learn very old lessons of investment after losing a huge amount of their hard earned money.
Wealth Creation Secret:
The mistake investors do is they don’t understand the basic investment principles. They simply try to make some investment decisions. How can these investment decisions be right? Very difficult. As an investor, you need to understand the investment principles. Then based on the investment principles, you need to take the investment decisions. These investment decisions will be right for sure. Without right investment principles, right investment decisions become impossible. Without right investment decisions, long term wealth creation is just a day dream.
Sound Investment Principles:
Asset Allocation:
Depending upon your financial goals, you need to arrive at the required rate of return from your investments. You need to decide what kind of allocation needs to be given to different kind of investment avenues (like Fd, Debt funds, Equity Funds, Gold ETF..) in order to achieve the required rate of return. Once decided, don’t change this asset allocation ratio depending upon the market movement.
Risk Vs Safety:
Whatever the long term savings you have got you can invest in risky assets like equity funds. You will be adequately rewarded for taking risk in the long run. Whatever the short term savings you have got you can park it in FDs or debt funds.
Investing your long term money in safe avenues will be a destruction to create long term wealth. You will not be able to beat inflation. Similarly investing your short term money in risky investments is also dangerous.
Fundamental Factors:
The returns an investment generates will be based on its fundamental factors. Analysing fundamental factors only will lead to a long term success. There is a lot of difference between taking one right investment decision by fluke and taking right investment decisions regularly by analyzing the fundamental factors.
These investment principles are very simple and straight forward. At the same time these principles are very authentic and profound. The magic formula for creating long term wealth is “Sound Investment Principles + Right Investment Decisions = Long Term Wealth”.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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 be proactive on your potential financial problems?

noreply@blogger.com (Ramalingam K) — Fri, 30 Dec 2011 06:40:00 +0000

Most of today’s problems are yesterday’s challenges overlooked. It is always considered a wise thing to perceive problems before they arise and attend to them at the earliest. By doing so, you will be spared from the trouble you may have to undergo in the later stages. Here are few pointers to assist you in identifying the problems related to your spending and saving patterns.
Potential problems related to your spending habits
You are finding it difficult to repay your debts.
Potential Problem: You decided to splurge in on your salary and went ahead purchasing everything you ever wanted on monthly installments and did rest of the shopping on your credit card. A few months later, you come to terms with reality not being able to service all your debts.
Possible Solution: You must take into consideration the fact that all your loans combined should not go beyond 30-40% of your salary. It is imperative that you bore this fact in your mind before taking any new debt.
You find yourself in a tight financial corner every next month.
Potential Problem: You spent a little too much on your vacation and are now feeling the pinch for not being able to pay up for the insurance premiums that you are required to pay the next month.
Possible Solution: In order to deal with such a situation, you need to monitor your accounting constantly on a monthly as well as annual basis to see how the cash flow is. This will help you to manage your cash flow in an effective manner.
You are unable to determine what you really need and whether you can afford it.
Potential Problem: You probably got a little too excited when received your bonus amount and made up your mind to purchase a big and brand new refrigerator or an advanced split air-conditioner to tackle the summer heat or a car to swing along the countryside. But, what you failed to assess initially was whether you would be able to meet up with the increased electricity or petrol bills generated in your monthly budget.
Possible Solution: You can deal with such problems by planning well-ahead and deciding firmly on entities you regard as relevant to your needs. You need to assess before you buy whether the recurring expenses of the equipment you’re going to buy in fits into your monthly budget.

Potential Problems related to your investment habits
You are unable to contemplate or relate to the product you’re in possession with.
Potential Problem: You have decided to invest in the real estate sector after seeing your peers make good returns, especially when the prices were rising. However, nobody explained to you the fact that your money could get bottled-up in there in the absence of a good deal. In the same way, you may have five insurance policies but not enough life insurance coverage.
Possible Solution: It is important that you know the purpose of buying a financial product is it will help you solve your financial problem. Not all products in the market will solve your required needs. By setting yourself goals, you will be able to zero in on the perfect asset choice.
When you need money, your portfolio is in negative:
Potential Problem: You worked hard and even managed to save up regularly cutting away all your unwarranted costs. Yet, when you come close to meet your goal (say buying a property), you realize that your portfolio doesn’t support your need.
Possible Solution: Before deciding to go in for the kill, you need to choose your assets wisely keeping your goals in mind. For example, it is quite risky to keep all you money in equity in case you are aiming for a short-term goal. As a result, your capital may get exposed in the event of the market falling.
You focus your investments in only one asset category:
Potential Problem: You made huge returns from the stock market last year. So you decide to concentrate your investments only in stock market. You have suffered in the 2008 crisis or 2000 technology bubble burst and incurred major losses and are quite suspicious if things would work out; and decide to stick just to debt investments. It must be noted that neither of the strategies will pay off.
Possible Solution: You may decide to go by your insticnt, but it is not always advisable to blindly invest everything you’ve got in a single asset class. In order to reduce the risk factor and still be on the charts, you are required to broaden your time horizon of investment. Also you need to diversify across various asset classes to reduce risk.
You have understood how to be proactive on your financial problems. Unimplemented knowledge is a burden. Our problem is not ignorance but inaction. You can be different from other by being alert to your financial problems well in advance.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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

Have You Done Your Financial Spring Cleaning?

noreply@blogger.com (Ramalingam K) — Thu, 29 Dec 2011 06:55:00 +0000

A Financial Planning experience with a client:
It was just another day that a new client came to us for financial planning. He wanted to know if he had planned well for his family financial goals. As a general procedure, I suggested that a study would help me come out with a comprehensive financial planning to meet his goals.
Explaining the Financial Planning Concept:
I told him that financial planning lies in addressing 4 important areas namely, risk management, wealth creation, wealth preservation and wealth transfer. It is an ongoing process throughout life. Financial spring cleaning done regularly helped to stay focused and keep track of your finances.
It is best to understand that financial spring cleaning involves collecting and assimilating data. This included various investments, present financial situation of the client. Then an appropriate plan was prepared and reviewed regularly considering changes. It is best to get a financial plan prepared by a certified financial planner or advisor that has the expertise, education and ethics and believes the plan would work for you.
Analyzing Life Insurance:
My collection of data told me that my client had more insurance coverage on his wife and dependent children than on him. In addition he had been sold certain unit linked plans by his investment consultant. These ULIP’s were disguised like profitable part of his overall portfolio.
So the first thing that I emphasized to him was to increase the term insurance coverage on him, so that his family was secure in his absence caused by sudden death. This was essential considering that he was the sole earning member of his family and still had various financial commitments before his children settled down.
Online term policies with nominal premium rates would be best for the purpose. I then told him that buying ULIPs are not good investments because of its heavy front loaded charges and under performance. As a part of portfolio revamp, i suggested to the client that he surrender certain policies and take up more of online term coverage on him.
Evaluating Health Insurance Requirements:
Client already had a general health insurance policy for him and his family. I also suggested that he should take additional health insurance coverage in the form of critical insurance. An additional critical insurance coverage would provide for income in case of critical illness eventualities.
Examining other investments:
Stocks and MFs: A closer review of his investments in stocks, mutual funds and other portfolios convinced me that my client had gone wrong in many of his investments. I was surprised to find that he had been misguided to invest in penny stock and closed ended NFOs of mutual funds. These stocks and mutual funds were not just risky but also lacked adequate liquidity and profitability to cater to long term inflation.
PMS: His portfolio management that was done by 2 portfolio managers lacked consistency that was vital for growth. They had repeatedly bought and sold stocks of big stocks like Larsen & Toubro, Tech Mahindra and Siemens just to book minimal profit and paid high costs on entry, taxes, brokerage and exit.
It was also seen that my client had an unwieldy portfolio that consisted of certain stocks that were bought on momentary emotions. In addition both his portfolio managers were buying similar stocks and mutual funds that made for laying all eggs in a basket. In addition to lack of diversity in stocks, they had sold off more profitable funds to invest in least known. I suggested that he invest more in diversified large cap and mid cap funds.
Fixed Income investments: We suggested moving of fixed deposits that earned just 6.5% post tax to fixed maturity plans that yielded 8.75% post tax. We also suggested that he increase his contribution to Public Provident Fund and in the senior citizen account of his parents.
Client Reaction
My client understood very well that his broker had not suggested investments taking into consideration his financial goals, risk tolerance and return expectations. We also rendered the service was to help our client create a cash flow management strategy. This would help him ensure surplus funds were appropriately invested in a diversified way.
To conclude once the first step was taken to embark on his new journey to a strong financial backing, we advised him to keep himself well informed about financial planning with knowledge from various sources. Finally he understood that it was worth taking help in financial spring cleaning due to the rich long term gains that would accrue to him.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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 Resolutions to keep in 2012

noreply@blogger.com (Ramalingam K) — Wed, 28 Dec 2011 07:04:00 +0000

As we are coming to an end of 2011, this is the time to reflect on the year gone by and the time to look forward for the New Year. You may use this chance to review your financial scorecard for the last year and need to make necessary changes and create an action plan to improvise the score for 2012.
Here’s the list of financial resolution for 2012. You may pick and choose a few among these and implement to improvise your personal finance management system.
1) Would you like to prepare a workable budget for the year 2012?
You may choose to create a workable budget for 2012 by projecting your income and expenses. Also consider investments committed earlier like insurance premiums, SIPs and other commitments like EMIs. Is there any other financial goal you are going to meet this year like buying a car or buying a property? Have you made the provision for down payments?
2) Would you like to do a portfolio rebalance?
2010 ended with a sensex of 20509. This year it is trading around 16000 levels. So definitely there will be a requirement to balance your portfolio to restore your predetermined debt equity ratio. Probably you may need to increase your equity exposure. You can make this market fall as an opportunity.
3) Would you like to resist the temptation to make quick profits?
Temptation to make quick profits is the biggest enemy of wealth creation. This temptation leads to speculation and gambling which in turn will lead to a huge loss. If you could take a resolution to resist this temptation you will not fall prey for bogus schemes that seem to offer huge returns.
4) Would you like to repay your high cost loans?
Do you have credit card debt, personal loan, or car loan? These are all definitely high cost loans. Why don’t you chalk out a plan to repay these debts well in advance? This will reduce your debt burden. You can become debt free earlier. You will have more investible surplus if you are debt free.
5) Would you like to review your insurance?
You may decide to check the life insurance and health insurance already taken is sufficient or any additional coverage is required. If you have taken a term insurance policy through an agent, now compare the premium with an online term insurance plan. By changing to an online term insurance plan you will definitely save up to 60% of your offline premium.
6) Would you like to do an early tax plan?
If you have not done your tax saving investments for the current financial year, you may decide to do it now without any further delay. As soon as the budget session is over create a tax plan for the next financial year. Doing tax saving investments in the last minute may force you to think only on saving tax and not on your financial goals and choosing a best scheme in sync with your goals.
7) Would you like to prepare a retirement plan?
Don’t put off today what you can’t afford to do tomorrow. In spite of the world wide pension crisis and a growing acceptance that we must plan and save for our retirement, the harsh reality is we are actually not saving enough. Research reports reveal that only 15% of the individuals are saving sufficiently for their retired life.
Have you started planning for your retirement? You may be saying ‘who me? I am too young to be thinking about retirement”. It is not so! Rethink. You should have started thinking about it yesterday. Because time flies quickly. If you were smart, and planned for retirement when you are young, your retirement years will be really those “Golden years”. If not you need to compromise and you need to work longer and retire later than others.
8) Would you like to avoid resolution pollution?
You need to be very cautious about setting too many financial resolutions and also need to avoid setting unrealistic financial goals. You need to set resolution which is workable. You need to keep realistic expectation on the outcome of the resolution. Over expectation may demotivate you. New Year resolution is not a magic. You will be able to progress it only over a period of time with constant practice.

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

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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

Have You Done Your Financial Spring Cleaning?

noreply@blogger.com (Ramalingam K) — Tue, 27 Dec 2011 07:00:00 +0000

A Financial Planning experience with a client:
It was just another day that a new client came to us for financial planning. He wanted to know if he had planned well for his family financial goals. As a general procedure, I suggested that a study would help me come out with a comprehensive financial planning to meet his goals.
Explaining the Financial Planning Concept:
I told him that financial planning lies in addressing 4 important areas namely, risk management, wealth creation, wealth preservation and wealth transfer. It is an ongoing process throughout life. Financial spring cleaning done regularly helped to stay focused and keep track of your finances.
It is best to understand that financial spring cleaning involves collecting and assimilating data. This included various investments, present financial situation of the client. Then an appropriate plan was prepared and reviewed regularly considering changes. It is best to get a financial plan prepared by a certified financial planner or advisor that has the expertise, education and ethics and believes the plan would work for you.
Analyzing Life Insurance:
My collection of data told me that my client had more insurance coverage on his wife and dependent children than on him. In addition he had been sold certain unit linked plans by his investment consultant. These ULIP’s were disguised like profitable part of his overall portfolio.
So the first thing that I emphasized to him was to increase the term insurance coverage on him, so that his family was secure in his absence caused by sudden death. This was essential considering that he was the sole earning member of his family and still had various financial commitments before his children settled down.
Online term policies with nominal premium rates would be best for the purpose. I then told him that buying ULIPs are not good investments because of its heavy front loaded charges and under performance. As a part of portfolio revamp, i suggested to the client that he surrender certain policies and take up more of online term coverage on him.
Evaluating Health Insurance Requirements:
Client already had a general health insurance policy for him and his family. I also suggested that he should take additional health insurance coverage in the form of critical insurance. An additional critical insurance coverage would provide for income in case of critical illness eventualities.
Examining other investments:
Stocks and MFs: A closer review of his investments in stocks, mutual funds and other portfolios convinced me that my client had gone wrong in many of his investments. I was surprised to find that he had been misguided to invest in penny stock and closed ended NFOs of mutual funds. These stocks and mutual funds were not just risky but also lacked adequate liquidity and profitability to cater to long term inflation.
PMS: His portfolio management that was done by 2 portfolio managers lacked consistency that was vital for growth. They had repeatedly bought and sold stocks of big stocks like Larsen & Toubro, Tech Mahindra and Siemens just to book minimal profit and paid high costs on entry, taxes, brokerage and exit.
It was also seen that my client had an unwieldy portfolio that consisted of certain stocks that were bought on momentary emotions. In addition both his portfolio managers were buying similar stocks and mutual funds that made for laying all eggs in a basket. In addition to lack of diversity in stocks, they had sold off more profitable funds to invest in least known. I suggested that he invest more in diversified large cap and mid cap funds.
Fixed Income investments: We suggested moving of fixed deposits that earned just 6.5% post tax to fixed maturity plans that yielded 8.75% post tax. We also suggested that he increase his contribution to Public Provident Fund and in the senior citizen account of his parents.
Client Reaction
My client understood very well that his broker had not suggested investments taking into consideration his financial goals, risk tolerance and return expectations. We also rendered the service was to help our client create a cash flow management strategy. This would help him ensure surplus funds were appropriately invested in a diversified way.
To conclude once the first step was taken to embark on his new journey to a strong financial backing, we advised him to keep himself well informed about financial planning with knowledge from various sources. Finally he understood that it was worth taking help in financial spring cleaning due to the rich long term gains that would accrue to him.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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

Investment Advisor Vs Financial Planner

noreply@blogger.com (Ramalingam K) — Thu, 22 Dec 2011 10:21:00 +0000

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

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

Why is this confusion?

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

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

Who is the Financial Planner?

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

Who is an Investment Advisor?

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

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

Goal Achievability:
A financial planner will be able to tell you, is it possible to achieve all your financial dreams with your current and projected earning capacity. If it is not possible, then the financial planner will be able to tell you what could be achieved with your earning capacity and to achieve all your dreams what kind of earning capacity you should have.
Risk Management Plan:
A financial Plan also covers creating a risk management plan. A risk management plan includes creating an emergency reserve, assessing the human life value and suggesting a term insurance; identifying medical insurance cover required and suggesting a health insurance plan; and also suggesting a general insurance policy to cover the natural perils like fire, flood, earthquake … against your properties.
Investment Plan:
A financial plan that suggests investments comes only after all the aspects have been analyzed fully. The best investment advice can only flow out after a deep analysis of a client’s need and after the preparation of a financial plan. Financial Planning should precede the investment planning.
Existing Portfolio Revamp:
It is also necessary to understand that a financial planner also looks at past investments. He then makes necessary changes to make them amicable to achieve a client’s financial goals over a period of time. Also he will assist you in restructuring your existing outstanding loans. If necessary he will create a debt pay-off plan also.
Tax Planning:
A financial planner should assist you in creating a tax plan also. This tax plan will be in sync with your overall financial plan.
Review:
A financial planner will do a periodic review on your financial plan and investment plan. If you are preponing or postponing one of your goal or if you have got a job promotion, then you may need a financial plan review. If direct tax code has got implemented or one of your investment schemes underperforming, then you may need an investment review.
In a nutshell a financial planner will not only give you an investment advice he assists you in managing your personal finance in a complete, comprehensive and a holistic way.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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

5 Blunders To Avoid With Stock Market Fall And Viable Solutions

noreply@blogger.com (Ramalingam K) — Tue, 13 Dec 2011 07:13:00 +0000

Lets Start Having A Look:

The present share market dip accompanied by a climate of pessimism in the share market calls for not just shrewdness in share dealing, but also for avoiding the 5 common blunders that I find most long term investors make during a share market fall. It is true that your precious savings needs to be protected and to grow, that makes me quote Ayn Rand, "Wealth is the product of man's capacity to think", so let us think and avoid those 5 common blunders.

Unveiling the 5 common blunders to avoid in stock market fall:

Being influenced with short term share market losses:

I have always advised young investors investing for long term capital gains to not panic if the value of their shares came down rapidly in just a year. It is not advisable to sell them to avoid further dips. A strong unchangable fact about the share market is that it is subject to ups and downs. The price of the shares would rise all of a sudden, and selling would only make it difficult to recoup your portfolio to meet your long term financial goals. The share market is like a voting machine in the short run and weighing machine in the long run, hence long term capital creation requires buying shares in an advantageous share market.

Short selling to make profits:

Short selling shares at a higher price, in the hopes to replace them by buying at a lower price proved risky for many investors. They all have soon realized that it was always better to have a cotton shirt on their back rather than aspire and fail in getting a silk shirt and have no shirt at all.

People believe that investment experts and large stock broking houses will be able to predict the market. If we watch and follow them we will be able to make quick bucks in short selling and F&O trading. Is that so? If there are investment experts who will be able to correctly predict the market they will not be writing or giving interviews about it in the media. They will be silently investing and making money without revealing their secret.
Most of the big names in the stock broking sector were opening more new branches in the upcountry side during the second half of 2007 (when the market was moving closer to 20,000 levels), expecting the market to go up further and hence their businesses will grow. But within six months, market had collapsed.
In the second half of the 2008 these companies decided to wind up their newer branches in the upcountry as they were expecting further downside. But again within next six months market started their recovery.

Never enter into shorting deals during a share market fall, but to hold on and invest more if you can make good returns in future.

Buying Penny Stocks of unknown companies in place of shares of reputed companies:
Market has fallen. You can invest now. Many investors fall prey for the idea of investing in penny stocks. You may think that you will get more number of shares when you buy penny stocks. Because you will get a very few stocks for the same amount if you choose to invest in large or midcap companies.

It is a universal advice that investing in thriving longstanding companies rather than, a less known company would guarantee you a good return in the long run. You should avoid investing a large sum in unknown penny stocks. It is always advisable to take calculated risks and not blind risks. By investing in a penny stock you are taking a blind risk which all successful investors avoid consciously.

Waiting for shares prices to fall further before buying:

When the market falls, that is a perfect time to start investing. Don’t wait for the markets to bottom out. It is difficult to identify the bottom and invest. By the time you recognize, that is the bottom level, the market could have bounced back.

Share market commentaries in the media always confuse us. When the market was at 20000 levels during Dec 2007, everyone in the media is predicting and analyzing the possibility of the market reaching 30,000 levels. But markets crashed subsequently. When they came down to 8600 level during Nov 2008 , everyone in the media is predicting analyzing the possibility of market going down further to 3,000 levels. But markets bounced back.

The prudent and smart investors understood this and started investing when the markets started falling. They have staggered their investments over a period of time. They followed simple strategies like systematic investment plan and systematic transfer plan.

I wanted high returns, but cannot see my capital fluctuating:
Some young and middle aged investors invest in high return portfolios with a lot of midcap exposure, and realize that their portfolios have fallen 15 to 20% with a share market fall in just 3 to 4 months. Their panic and decision to sell their shares for reinvesting the same in fixed return investments like Bank deposits or company deposits is wrong, and I would have advised them to just wait. Their present loss and reinvesting in fixed deposits would take them longer to recoup the capital and make sizable returns. The solution lies in sticking on to the share portfolio and be intelligent to buy more shares for long term wealth creation.

The final word:
My final word of advice for long term investors is to never allow emotions or short term fluctuations to alter their investment decision, and to always buy in a falling share market. I am sure a rational decision accompanied by safe dealings can make your long term financial goals a reality.

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 Does Spread Betting Work?

noreply@blogger.com (Asav Patel) — Mon, 12 Dec 2011 06:18:00 +0000

How does spread betting work? Spread betting is indeed a leveraged product and carries a high level of risk to your hard earned capital. Which is another way of saying, you may lose more than your initial deposit.. A spread bet thus might not be too suitable for all investors, thus ensure that you fully get a grasp and understand the risk involved and seek independent advice if its necessary. This side, how do these kind of bets operate, compared to direct investing in stocks or shares? Let's take an example of buying or spread betting in relation to 1000 shares of a certain company. If the market price is 4.25p, or £4250, a rise in price will share of .25p will create a total increase in the value of the shares to £4500 pounds, or profit of £250 pounds not counting capital gains tax. Approaching the same situation through spread betting, however, has certain advantages, including avoiding a stamp duty in the UK, or the capital gains tax. This means one can make the same 250 pounds without the expenses. Most importantly, one need not commit £4250 to achieve the £250 profit, because of the leveraged nature of the spread bet. There is a price to buy the bet if you're expecting the share is going up, and a price to buy the bet if you think the value is going to fall. The spread between those two prices is what is taken out by the broker as the profit. Meaning, all one need do is (in the example above) to buy on £425 pounds on the expectation that the value is going to increase with the company's shares. The better and the broker decide on the nature of the points the stock is expected to move up or down on (it could be one point per pence, or other value). Much of the time, the minimum point for movement of the stock or share has already been defined by the broker. Let's say that your share bet is 10 pounds per point that the share will go up, and by later in that day the £425 you bet on in this fashion increases to £450. At this point you close your position at that value, and in spread betting terms you have a 25 points profit. Should you were betting 10 pounds per point, your broker will convert the points profit accordingly, and convert that to 250 pounds. So, for making a commitment or exposure only 10% of that of the traditional investing example, you make the same amount of money, without the taxes or duties. In addition, you may usually only have to put half of the money up front in a spread betting scenario, in this case only 212 pounds or so, in order to realize the profit above. Some share some more volatile than others, which complicates using this leveraged pathway to making money. But this is more than offset by the limited exposure of capital needed to realize the larger or equivalent profit compared to normal share dealing. If you're prepared to fund potential losses (with a guaranteed stop in place, because the leverage in the negative direction is just as powerful), this can be an overall incredible way to maximize profits dealing with shares.

A Step by step Guide for Buying Resale Property

noreply@blogger.com (Ramalingam K) — Tue, 29 Nov 2011 06:10:00 +0000

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

Buying Resale Property –A Guide

Consult Experts:

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

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

Documents:
Buying resale property seems great, but it could become a big problem if the documents regarding the original purchase and subsequent transfer of title are not properly stamped. Firstly it could pose great problems especially if you want to apply for a loan for purchase of the resale property. Subsequently it could prove to be unacceptable in case you wish to transact further on the property.
Existing Loan:
It is also necessary to make sure that the property documents are not lying mortgaged in the bank’s custody against a loan taken by the seller. The bank will consider a loan only once the loan taken by the seller is repaid and the documents released.
Loan Eligibility:
Buying a resale property would definitely provide you with a bigger space in case of older properties. However it is best to note that some banks may not lend money on buildings older than 10 years. This may be due to the reason that they may not want to take the risk of the price of the property going down. Banks also make sure to ensure that the bank’s outstanding loan should always be lower than the value of the property in the market.
Property Valuation:
Next it is imperative to note that the loan amount is highly dependent on the cost of the property. Technical experts would evaluate the property. However it would be useful to yourself avail the services of a property valuator at a small fee before approaching the banks. The bank’s property valuator may valuate the property at a much lower rate. They would also like to safeguard their interests against the fall in the price of the property in future.
More Down Payment:
Most banks wish to make sure that you be responsible for the maintenance and good upkeep of the resale property. So banks would expect you as the purchaser of the resale property to pay a certain percentage of the price as down payment. You may have to pay about 20% of the price as down payment; property of 50 lakhs requires 10 lakh as down payment.
Age of the property:
This down payment could be more in case of older properties. In addition, banks usually lend only on properties that are unto 50 years old. The tenure of the loan also decreases with the age of the property.
Flat Society:
The bank may grant the loan and you may make the down payment, but there could be another problem. It arises out of the need for some Flat societies that require the payment of a heavy price for change of ownership. It is best to consider this cost also when coming to a conclusion while purchasing resale property in cooperative and other societies.
Conclusion:
Buying resale property would give you a chance to settle in your own house fast and save you of high rents paid and the need to frequently shift your place of living. Taking a loan from the bank could give you tax deductions on the interest paid soon. You would not have to wait till the possession as in the case of new flats. It is always prudent to be well informed about the various details of the resale property.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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 Insurance Myths Debunked

noreply@blogger.com (Ramalingam K) — Fri, 25 Nov 2011 07:07:00 +0000

Planning for contingencies like death and hospitalization also forms an important part of financial planning. Buying life insurance provides for the living expenses of bread earners family in his absence on death. Let me debunk a few insurance myths today so that you will be able to take better financial and investment decisions.
Myths about insurance:
Myth 1: Life insurance is a waste of money. But it is good to understand that it is bought to protect ourselves from the contingency of untimely death. It would give finances for living expenses of your family if you die young. Life insurance is an investment that is more a safety mechanism; it is to provide financial security on death. Term policies that cover the risk of untimely death only are cheap and most ideal for providing life coverage alone.

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

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

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

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

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

Myth 7: Pleasing your friends/relatives/associates is very important.
Kindly avoid taking policies just for the sake of satisfying your friends and relatives who are insurance agents. Also you need to avoid taking policies just to maintain the relationship with business associates like bankers.
Insurance policies need to be taken to based on the need. Now a days online term insurance are 50% cheaper when compared to the term policies taken through agents or brokers.

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

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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 Layman’s Guide To Reverse Mortgage

noreply@blogger.com (Ramalingam K) — Tue, 22 Nov 2011 05:19:00 +0000

What is reverse mortgage?

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

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

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

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

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

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

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

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

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

Eligibility for reverse mortgage:

A senior citizen can avail of reverse mortgage on his/her house or property when:
 He/she is above the age of 60 and his spouse that is a co-applicant is above 58 years of age.

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

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

Settlement of reverse mortgage:

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

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

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

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

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

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the 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 Guilty Of Financial Infidelity With Your Partner? Have A Look.

noreply@blogger.com (Ramalingam K) — Mon, 21 Nov 2011 07:28:00 +0000

Stories of financial infidelity:

Mahesh, a successful upcoming software engineer’s life was in a real mess; it is good he realized it at least now. He had come to meet me for financial advice and plan. He started doing online trade after learning that his colleagues were making a lot of money. But he had lost heavily due to his ill-luck, inexperience and lack of knowledge. He indulged in tactics of taking loan from one to repay the other and taking loans from another to repay the earlier loan. Mahesh was in debt to the extent of 20 lacs, and his creditors were pressurizing him to pay back loans given. So far he has not disclosed all these things to his young loving wife, Lekha.

Mahesh believed that Lekha was no good at finances and was just home bound. He also believed that he had to support her, but had no moral obligation to reveal anything else to her. Lekha was shocked to know that Mahesh was deep in debt. She was sensible and thrifty and thought they would soon lead a comfortable life, but her dreams were shattered and she was forced to sell all the jewelry and some of the household things that her parents had given her in marriage. They found that affording the rent of their flat was also too much, so they had to move to a smaller flat.

Lekha was happy for she knew at least now and could keep a track of Mahesh’s finances, but she lost faith in Mahesh as he hid vital financial information from her and decided that she had to start earning also to feel financially secure in their relationship. Mahesh’s financial infidelity has broken the very foundation of their marital life that is based in trust, confidence and open discussion of all vital issues.

Financial infidelity could go further in various other respects like the case of Ankit that hid vital information about the salary he earned and the increments he got, the loans he took, and the number of credit cards he used. He died of a severe cardiac arrest at the tender age of 32, and this was a shock not only to his wife and children, but also to his parents and in-laws.

Ankit’s wife Anila believed that he had taken sufficient insurance to protect the family in case of his death. She also believed that he had enough savings. But Ankit a poor money manger had huge credit card dues, as he had borrowed for family expenses. Also he had a sizable amount of car loan and home loan. He had the habit of paying only the minimum due on credit cards. Besides he had defaulted payment of premium on some policies.

Anila was shocked and disposed off their flat and car to close the loans. She was left with very little from the insurance Ankit had. She only wished that Ankit had told her everything so that she could have set aside enough for the family and not had to send their son Amit to a government school and have no finances for his future education.

Recognize when there is financial infidelity:
Mutual Trust:
As the couple ties the knot and takes the marriage oath, it seems so pleasant, but I would say trust and respect for each other need to be for life. The break of trust and respect in major financial matters amounts to financial infidelity. I would say that transparency in marital relationships is very important and could help save situations that are irrevocable.

Financial Openness:
This applies to revealing the number of bank accounts a partner has and the nature of transactions made. You need to have an open discussion with your spouse on the financial matter like the number of credit cards you have, loans you borrow, investments you make, tax you pay…

Family Support:
You need to inform all your family members and dependents about your financial and debt status. Then you will be able to take decisions with much more clarity. Moreover, if your family members know about your debt, they will also change their spending habits and support you in getting out of debt faster

Equal Weight:
You could definitely be not guilty of financial infidelity if both your partner and you consider that equal weight should be given to both views in financial affairs. This is also necessary for the strong foundation of your relationship and family.

Spirit of compromise:
It is true that mutual trust and respect coupled with compromise can do a lot to remove financial infidelity and save the extreme situation that we have seen in the case of Mahesh’s and Ankit’s family. A spirit of compromise could definitely save financial infidelities that have their roots in selfishness on the part of one of the partners. This also apples to relationships that is emotionally vulnerable with one partner feeling inferior or being terrorized emotionally.

Lastly I am sure you would all refrain from the guilt of financial infidelity that could not just ruin the financial position of families and their overall peace, but could also cause certain devastating relationship issues that could not heal even in a lifetime.

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

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

Give yourself a financial check-up

noreply@blogger.com (Ramalingam K) — Tue, 08 Nov 2011 07:20:00 +0000

Every day we hear people talk about quarterly reviews of companies, the balance sheet, the result season, etc. If company reviews are so important, then why not the review of an individual's financial situation? In fact, taking stock of your current financial situation should form an integral part of your personal introspection regimen.
But this should not be just a one-time process -- it is important to review your current financial situation on an ongoing basis.
Let us see why this is important:
Life is dynamic! No one knows what tomorrow holds. Everyone's dreams, needs, and aspirations keep on changing with different stages of life cycle or circumstances in life. These circumstances could be anything like:
Marriage: Brings about a very big change in life. An individual's expenses suddenly double up and likewise the income too doubles in many cases. Hence, not only is it important for accounting the increased expenses but also to take into consideration the increased income if any.
Not only will marriage bring about a change in your finances but also in your goals. Goals like buying a house, planning for kids and their future. Hence if a constant review is done, you have an exact idea as to where you are and what kind of adjustments or changes are required post marriage.
Kids: Children bring about a joyful change in life. Additional day-to-day expenses, their educational expenses, medical expenses, getting them married, leaving behind inheritance becomes an integral part of your financial plan. Hence, the change has to be accounted for.
Death: Death of any member of the family can be life changing. In case of death, there can be added responsibilities or deletion in responsibilities. Both ways, there is bound to be a major turmoil in your finances.
Hence, constant monitoring by both the husband and wife helps in keeping abreast with your finances and you are prepared for all eventualities.
Change of employment or business or place: Can have a negative or positive impact on your finances -- whichever way adjustments are required.
Inflation: Again a big factor. I am sure everyone will agree with me especially after what they must have seen in last few year. The adjustment in finances based on inflation is a must.
There can be many other factors like say illness, windfall gains or something else that affect your finances. A constant monitoring of your finance helps you to adjust all of these in best possible manner and also help you in planning your finances in the most optimum manner.
The benefits of reviewing your financial plan
Let us have a look at the benefits of constant reviewing of your financial situation.
Budget is the first step towards organising finances. A lot has been written about budgeting. But how many of you actually sit down to review your budget every month, that is, compare the projected expenses with the actual expenses? Or one month's budget with another or one year's budget with the previous year?
Not only is it important to maintain a budget on a regular basis but also to sit and analyse it. This will help you know whether you are going overboard and if so, where. Although you might be saving money at the end of the month, with just keeping a regular review you will be amazed as to how efficiently you can cut your expenses and end up increasing your present savings.
Also a regular review of your finances will help you know how much contingent fund or emergency fund is required. Ideally an amount equivalent to three-month of your mandatory monthly expenses can be set aside as emergency fund.
It is also important to prepare a statement of net worth wherein all your assets and liabilities are listed. A constant reviewing is required so as to know whether you are going overboard in borrowing or what is the exact status of all your assets. Opening this sheet gives you an overall view of your financial situation and hence a constant updating is a must.
Insurance is a very important aspect of financial planning. Why a constant review or monitoring?
As explained earlier life keeps on changing and with additions like marriage or children the insurance requirement increases. Again individuals with ULIPs have to monitor their account statements to know how it is performing.
One more important fact: monitoring also helps you to remember to renew your mediclaim insurances and term plans and reminds you to p ay your premium on time. For individuals above 45 it becomes difficult to get a new mediclaim policy.
Investments are done to aide you in achieving your goals and have a financially secured future. It is very important to monitor these. You should know whether your hard-earned money is earning for you or not.
Many a times there are changes happening with regards to an investment, say for example, a fund manager of a mutual fund has changed or change in some rules which might lead the fund to not perform or in stocks like a particular sector is not performing or there is bonus, or problems in company, or rights have been issued.
Monitoring will keep you abreast with all these changes and you know your status and if need be change them at an appropriate time and not after incurring losses.
Frequency of review
Depending on your financial plan (your asset allocation, size of assets, nature of assets) the frequency of review differs for everything.
Budget: Every month.
Investments: At least every quarter. Do note that although you are reviewing the status of your investments every quarter it does not imply that you need to shuffle your portfolio every quarter. If your portfolio is planned as per your goals and time frame in which you need to achieve them then all you need is a review. Shuffling is a big no-no unless, a big change has happened in your life or you are actively following the stock markets and you trade 20 percent of the portfolio or some new guidelines in investment avenues have been announced which might lead you to redeem your investments.
Complete financial plan (which includes review of goals, statement of net worth, insurances and again cash flow and investments): Once every year unless a big change has happened.
Life is uncertain and much more uncertain is the events that happen during a lifetime. While you cannot change the course of events, being prepared at least financially and knowing what your options are at each and every stage of life can give you a sense of reassurance, stability, and the much-needed peace of 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

Terms you need to know in Insurance and Mutual Funds

noreply@blogger.com (Mayank Gupta) — Mon, 31 Oct 2011 17:06:00 +0000

Sum assured

Sum assured is also known as life cover. The amount which a life policy holder nominee will get at the death of the policyholder during the term of the policy is called sum assured. Generally, the amount of sum assured should be 5-10 times of your annual salary

Vesting Age

There are different types of pension plans in insurance. The age at which you want to start getting pension is called vesting age. An age of 55-60 is considered to be the appropriate vesting age

Annuity

Annuity refers to the annual payments on a monthly basis paid to the policyholder after you cross the vesting age

Surrender Charges

Surrender charges are levied by the insurer if you close the insurance policy before the vesting age. Generally, one is advised to think twice before surrendering the insurance policy

Mutual Funds

Mutual funds is a pool of funds which is managed by a professional fund manager in equities, debt and invests across various stocks and sectors and helps a retail investor to diversify his portfolio. There are various kinds of mutual funds namely large cap funds, mid cap funds, small cap funds, multi cap funds, thematic funds

Net Asset Value (NAV)

Net asset value is actually the price of a mutual fund scheme which is sum total of the market value of all shares held in a stock portfolio divided by total number of units outstanding. In other words, NAV is also called the book value of the mutual fund

This article is written by Mayank Gupta who runs a wealth management company www.wealthbazaar.in and provides portfolio advisory services and financial planning services

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

noreply@blogger.com (Ramalingam K) — Mon, 31 Oct 2011 11:26:00 +0000

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

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

Choosing right MF:
Investment Objective & Time Horizon

The objective of the fund or the use to which the funds would be put to would be a vital deciding factor. Mutual funds investing in stocks would suit those that are ready to take more risks; stocks means more exposure to the volatile market though higher returns. The length of time that one has to wait to get reasonable returns also plays a vital role. So it is best to read the offer document or fund brochure carefully before making the decision.
Liquidity:
In addition whether a fund is an open-ended or close ended one points out to how liquid your investment is. Open-ended funds are preferable to close ended ones as they can be converted to cash more easily than close ended ones that involve waiting for a period of time. Historically open ended funds have performed better than closed ended funds.
Diversification:
It pays to check for diversification in mutual funds, for an optimum diversification makes for a good choice. Opting for a diversification over 8 to 10 securities would be more risky than going in for diversification of 20 to 30 stocks. The diversification of stocks over 80 to 100 securities may mean difficulty of management to the fund manager. In addition making sure to ensure that there is a balanced diversification helps.

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

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

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

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

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

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

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

Has the US debt credit downgrade brightened the chances of yet another financial fiasco?

noreply@blogger.com (jason) — Mon, 31 Oct 2011 07:38:00 +0000

Despite the US Treasury crying foul for all that it wants, the decision taken by the Standard & Poor’s to downgrade the top-notch credit rating by one notch and the ensuing plunge in the stock market are clear signs of loss of confidence and an assessment that is political and not economic. There is a small question about the technical capability of the United States of America to make a good decision about the debts but there is a big doubt in the minds of the experts about the political system of the nation to resolve the already existing financial problems and to get out of debt as soon as possible. The debt ceiling deal between the Congressional Republicans and President Obama could merely stave off the crisis of the confidence for the moment but does not really address the need to raise enough consciousness so that the nation doesn’t fall back into yet another recession. Most US economists are of the opinion that a double-dip recession is on the horizon due to the sour turn of every major economic indicator, but is this true? Read on.

Chances of the US economy to dip back into a recession – What are the possibilities?

Though it is going to be a scary time for most people, you need to analyze every particular issue that can speak about the credibility of the fact. This particular prediction varies by the forecasters but the standard range usually between 25 and 50%. There are some particular economists who are deliberately leading the entire pessimistic crowd by saying that there are more than better chances of the US headed for another recession. Especially when you look at the unemployment figure, the number of jobs that are generated, you can decipher the possibility of the US drifting to yet another recession. However, Jay Carney, the White House spokesman negates all such opinion by saying that there are no such threats of a double-dip recession.

What are the economic signs that are bothering almost everyone?

There are some particular economic signs that are worrying almost every citizen within the US. The signs of slow economic growth are one of the biggest things that are being considered as the most prominent reason for the nation sliding back into another recession. As per the reports of the Commerce Department, the expansion of the Gross Domestic Product was 1.4% in the 2^nd quarter of 2011 and 0.5% in the first. Service activity and manufacturing indices were down and consumer spending has also dropped. The massive cuts in the government budget are also wiping out some of the private sector gains, including a 38,000 job-drag in July, 2011. The Labor Department said that the US employment-to-population ratio or the percentage of work-age Americans who actually hold a job has recently dropped down to 59% in July and this is the lowest figure since 1983. This is deemed to be one of the scariest signs of the double-dip recession.

Every cloud has a silver lining – What’s the silver lining here?

Yes, there are some bright spots amidst all the negative news! The sagging expectations for growth are pushing up the global oil prices to their lowest level. The lower are the oil prices, the better will be the chances of consumers to step up their spending once again. Secondly, as the corporate profits remain high compared to the relative number of employees in the private sector, this will help the economy.

The US people lost the first decade of the 21^st century by borrowing money as if there’s no tomorrow and still run the risk of losing this decade to an economic stagnation. Experts recommend citizens not to panic and to hope for the best so that the US is saved from sleepwalking into yet another financial fiasco.

Jason Holmes is a regular writer with Debt Consolidation Care and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like 'Credit Score The Quintessential Therapy for a Happy Pocket', Take Creditors and Collection Agencies to Small Claims Court' and, My Story- From Depression To a Smile'.

6 Financial Planning Misconceptions Demistified

noreply@blogger.com (Ramalingam K) — Fri, 28 Oct 2011 08:54:00 +0000

Let’s start the useful exercise:
Finance may mean different things for different people. Some assume that they need no financial planning as they have very little finances. Still others believe that once they have invested their savings for future their task is over. In addition some pre-conceived notions that company we work for, pays our medical and hospitalization expenses so we need no reserve, combined with the notion that a life insurance policy takes care of death, disability and accidents.
The need for no financial planning is complemented with the myth especially among the young that their retirement is far away and they could easily plan for it just a few years in advance. To further complement this myth that our ancestors would leave behind estate and property for us to enjoy with a will.
Well dear friends financial planning can never be overlooked as finances invested well today could provide for good financial resources in future. It is true that a person who helps himself succeeds best in having financial stability in life.

Have a look at the myths of financial planning:
1. “I have life insurance to protect them in case of my death.”
My hearty congratulations for taking up insurance policies to protect your family needs in case of your death. But the question is do you have adequate insurance to look after your family needs for a lifetime. In addition it is worth considering if you have enough to look after your children’s education and marriage needs considering the rate of inflation. Also it is worth considering if your family would be financially secure if they have to repay loans taken by you after your death.
2. “I just make both ends meet, where is the need to go in for financial planning?”
You may be right, but if I were to tell you that we all need to provide for financial contingencies would you say financial planning is unnecessary? So all of us have to plan to make their hard-earned money to work for them, and this applies more so single income families. Financial planning makes sense not only to repay loans taken but also to get continuous supply of money for our needs. So we need to have a strict look at our expenses and find ways to minimize them. A small example could be to forego a pack of cigarette a day to save and invest in viable investment scheme.
3. “My financial planning is done as I have invested in different schemes.”
I appreciate you for taking the first step towards financial sufficiency, however believe me this is just the first step to the 1000 miles towards lifelong financial stability.
All you are investments are really supporting your financial goals or not? Is the schemes in which you have invested is really performing or not? Is the maturity value from the schemes is sufficient to meet the goals or not?
A financial need analysis to cover various short term and long term needs could be best accomplished with a financial expert’s advice.
4. “Youth is to enjoy, retirement is far away. It will look after itself.”
Let us face this myth headlong with analyzing that retirement is not a contingency, but a necessity that is to be provided for right from the time one starts earning. It is advisable and much easier to start saving when young, as savings become difficult with additional expenses.
Saving for retirement starting from youth through retirement plans seems much easier when the amount to be put aside for the corpus is much less every year and it is also possible to save through various investment avenues. Starting to invest for retirement when young gives one the advantages of compounding of savings. This would also help take care of inflationary tendencies.
5. “I have enough health insurance, and my company gives me coverage too.”
Being covered with health insurance and medical expenses at work is great, but this would not cover all your health expenses. It is always good to take additional coverage and provide for unforeseen contingencies like critical illness that would not only involve expenses on treatment, but also on maintaining the lifestyle of the family till one is ready to go to work.
Being young does not prevent you or any of your family members from getting a critical illness with the present lifestyle. With fresh insurance coverage over the age of 45 being tough it is best to save for this period.

6. “I do not have to worry as I will inherit from my parents as my children will inherit from me.”
Inheritance has neither been a cake-walk, and a will is very important for inheritance. Financial planning involves the making of a will to avoid disputes between the heirs. Making a will is not about how big your property or estate is, it is more about necessarily making a will about the inheritance.
Financial planning is not just the forte of finance professionals alone, but is judicious and smart planning of finances for a lifetime. Lastly financial planning is not an end but a means to an end of financial stability and security.

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