Lesson I learnt from a Mango farmer

Investoshashtra !!!📜📜📜
इनवेस्टोशास्त्र !!!📜📜📜

Just after 12-14 months of planting mango plant, if it's well grafted plant flower will start coming during the season, but first thing they do is pluck off the flowers.Next season again flower comes and are again taken off. They keep doing like this for few years. They don't let that flower to bear the fruit.

They will wait for plant to grow because they know if fruit starts coming out of that plant it would never grow to a full-fledged tree. It will not bear as much fruit as it could, if it bears too early.

This is what an investor must learn from farmer's wisdom, don't try to leave too early. This is the time to think about future as well and for bigger goals, liabilities and expenses in life.

So together with living in today, also *"plan for future as _that is the place you are going to spend most of your life._*"

If you start living too early, you might not be able to live a full-fledged life.

We have built habit of spending without planning, *since 2011 India's household savings has fallen from 26.1% to 16.3% of GDP.*

*Most surprising part is, in past consecutive 6 years personal consumption expenditure has outgrown household income. That means we are spending much more than our earnings.*

So this weekend let's learn and implement some of farmer's wisdom for creating a secured and safe future.

Have a rocking weekend.

Regards,
Raj Talati
www.rajtalati-abminvestment.blogspot.com

Thank god March is over

Whether it's government or entrepreneur, a shopkeeper or an employee, chartered accountant or insurance agent, everyone takes a breather as soon as March is over..

Someway or other everyone manages to take over with March financial blues.

But have you ever thought how will you take over month of ''March of your life...(Final stage of Retirement)'' the biggest problem with life is we do know when Jan or Feb (Retirement) will arrive but no clue of when will March arrive and specially the D-day i.e. 31st March.

It might not be a big problem if you don't meet 31st target professionally, but you can't afford to lose March target of your life.

One thing I can guarantee, if not planned properly in advance it could be a worst nightmare which will become reality.

So, if you have not given a serious thought to your retirement planning, take sometime this weekend and do plan and review it.

Remember sooner the better.

Which Investment strategy is correct in your age ?

Investing for retirement is important at any age, but the same strategy should not be used for every stage of your life. Those who are younger can tolerate more risk and/or can contribute small amounts, if that's all they can afford. Those who are older should take advantage of higher salaries and lower expenses to make the most of their peak years.

Starting Out: Your 20s

Even though you may have recently graduated from college and are likely to have started buying smart gadgets please also use this time to start investing. Whether it’s in a company EPF account or a PPF account you set up yourself, invest what you can as a twenty-something, even if you can contribute the 15% of your salary.

You have the biggest advantage over everyone in investing right now: time. Because of compound interest, what you invest during this decade has the greatest possible growth. Since you have more time to absorb changes in the market, you should also invest aggressively in Equity Mutual funds and avoid slow-growing assets like bonds.

Remember to stay away from unnecessary borrowing or over spending on your credit cards and personal loans.

Career-Focused: Your 30s

If you put off investing in your twenties due to enjoying earlier carrier year or paying off student loans or the fits and starts of establishing your career, age 30's is when you need to start putting money away. You’re still young enough to reap the rewards of compound interest, but old enough to be investing 20-25% of your income. Also read: 

Even if you’re now paying for a mortgage or starting a family, contributing to your retirement should be a top priority. You still have 30-40 active working years left, so this is when you need to maximize that contribution. Make sure to start an PPF account if your are not having an employee and having EPF account towards safer allocation.

Still you can invest majority of your investments for longer term needs like childs education, marriage or retirement in a diversified equity fund.

Retirement-Minded: Your 40s

If you’ve procrastinated saving for retirement until your forties, or if you were in a low-paying career and switched to something better, now is the time to buckle down and get serious. You’re at the midpoint of your career and you're probably reaching your peak earning potential. 

Even if you’re saving for your kids’ college funds or continuing to pay your mortgage, retirement savings should be the forefront of every financial decision. You have enough time to play catch up if you’re careful, but not enough time to mess around. Meet with a financial advisor if you’re not sure about which funds to choose. You’ll need to save in aggressive assets like equity mutual fund so your funds beat inflation. 

Do remember to start parking funds out of Child education, marriage goals to Bonds or FD's any need which is due in next 3-5 years should not go to equities at all.

Closing In: Your 50s and 60s

Since you’re getting closer to retirement age, now is not the time to lose focus. If you spent your younger years putting money in the latest hot stocks, you need to be more conservative the closer you get to actually needing your retirement savings.

Switching your investments to more stable, low-earning funds like bonds and money markets can be a good choice if you don’t want to risk having all your money on the table.

Now is also the time to take note of what you have and when might be a good time for you to actually retire. 

The Bottom Line

A Chinese proverb says: “The best time to plant a tree was 20 years ago. The second best time is now.” That attitude is at the heart of investing. No matter how old you are, the best time to start investing was 20 years ago. The second-best time is now. It’s never too late to do something, though. Just make sure the decisions you make are the right ones for your age group — your investment approach should age with you. 

It's also a good idea to meet with a qualified professional who can tell you where you stand and where you need to go. Professional help always pay in long run.

Financial Planning Tips for people in 30s

From financial planning perspective it is a golden period for who are in their late 20s and 30s to plan and achieve what they dream of.

In 30s and 40s you should focus on building a base level financial security and moving along in terms of career. These are important financial planning years and you can benefit from solid financial planning advice.

By the time you reach 30s it's time to get down to business with your financial plan if you haven’t done so already.

The most basic financial step is to get spending under control. It is always best to live below one’s means. This allows for saving for retirement, car, kids education, a home and all of the other things you eventually want out of life.

Address excessive debt as soon as possible. This could be any outstanding education loan, personal loans or credit card debt—get what you can paid off and develop a payment plan for the rest.

BUILDING A SOLID FINANCIAL PLAN

Ideally, you should be thinking in terms of having a comprehensive financial plan done by a fee-only financial advisor. This is not about succumbing to an advisor out to sell expensive or unnecessary financial products, but rather about getting objective financial planning suggestions with as few conflicts of interest as possible.

You are moving forward in your career, buying home, starting business, getting married, having children and a whole bunch of other grown-up things. Financial success can involve juggling a lot of balls in the air. A qualified financial planner can help in providing a financial road map.

CONTINGENCY FUND

You should create a contingency fund which can take care of your expenses in case of a job loss or any medical emergency.

INSURANCE

Life insurance is the most critical part of financial planning. Every individual who have dependents and loans to be paid, should need to have sufficient insurance coverage which can take care of family's future in case of premature death of earning member.

Together with sufficient life cover ensure you have taken Medical and Disability insurance if not provided by employer. The rising medical cost can disturb all your future goals and present lifestyle.

EXPLORE INVESTING I/o SAVINGS

In present low interest and high inflationery period when real return post taxation is negative. It is always advisable to consider investing in equities in systematic way. In long term it can give you good real return. 

SAVING FOR RETIREMENT

If you are employed automatically you have starts contributing to EPF. But in present high inflationary environment only EPF corpus will not be sufficient to take care of retire years.So, by the time you reach in mid 30s you are likely to be more established in careers, which means salting away money for retirement and other financial goals. This is a great time to do some retirement projections and planning.

A financial plan and retirement projections should be a must at this stage of life. Are you on track towards accumulating what you will need for retirement? Do you need to save more? In 40s there is still time to close any gaps. A detailed retirement savings and investment strategy should be key outgrowths of the financial planning process discussed above.

THE BOTTOM LINE

In 30s you need to focus on financial planning. Retirement is still a bit far off, but not as far off as it used to be. Retirement savings should be a priority. For those who are married and have kids, protecting their loved ones in the case of death or disability should also be a priority. 

Ensure chicken is not pecking up your investments...

There were Two grains lying side by side on the fertile soil. 

The first grain said: “I want to grow up! I want to put down roots deep into the ground and sprout from the ground. I dream to blossom in delicate buds and proclaim the coming of spring. I want to feel the warm rays of sun and the dew drops on my petals!”.

This grain grew up and became a beautiful flower.

The second grain said: “I’m afraid. If I put down my roots into the ground, I don’t know what they will face there. If I grow tender stems, they can be damaged by wind. If I grow flowers, they may be disrupted. So I’d rather wait for the safer time.

Thus the second grain was waiting, until the chicken that passed by did not peck it.

I found similar is the situation of Indian investor they are always fearful about their investments in equity. What would happen if market will go down, what if GDP growth would not be as expected, what if inflation rises, what if I would loose my hard earned money, why should I pay fees to advisor, why should invest in Mutual funds.

Now we are having almost 22 years of history of mutual fund investment, not a single fund has not given return lesser then market, inspite of seeing all the worst a economy can face in this 22 years. We have seen a government for 13 days, a communist supported 3rd front government, Asian Financial crisis,Kargil war, Sanctions imposed on us due to nuclear test, Tech Bubble,9/11 attack, Ketan Parekh scam, terrorist attacks of parliament and of Mumbai, Corruption/scams, Sub prime crisis and lot more.

Inspite, of that there are funds which has given annualised returns to the tune of 24%, which even god of investment Warren Buffet have not been able to generate consistently for such a long period. 

Which means if someone would have invested Rs.100000 in the fund 20 years back that would have been worth 80.00 Lakhs, i.e multiplied his money 80 times or have made an SIP of Rs.5000 (Total Investment Rs.11.80 Lakhs) per month would have transformed into Rs.2.51 Crores.

So let us try to reap the benefit of equity investments and not become like other seed waiting for inflation and taxes in the form of chicken to peck it.

How much reliable EPF/PPF for Retirement Funding???

I have come across lot of investors who lives in an fool's paradise as far as there retirement planning is concerned. They purely rely on EPF or PPF assuming that they would have a happy and comfortable retirement.

I did the same for one of my investor Mr.Nikhilesh, who is just 28 years of age and works with a IT company. He assumes a salary growth rate of 10% every year. On the basis of it, his EPF corpus works out as follows :

Nikhilesh is married and blessed with a daughter. Let's find out what would be his retirement expenses and his corpus requirement his present monthly expense is Rs.18000.00. We have not considered any of his intermediate goals considering that it will be taken care by his savings or some extra ordinary jump in the salary during his most productive phase.

So his EPF corpus at the time of retirement would be Rs.3.15 Crore and whereas his required corpus to maintain similar lifestyle would be Rs.5.22 Crore. So there would be a gap of Rs.2.07 Crore. Remember we have not considered any medical expense and emergencies.

To accumulate the above amount he would be required to contribute additional Rs.1.50 Lacs per annum (@8.7% for 30 Years). 

The PPF investors are worst as in above case Nikhilesh would be investing 24% of his basic salary (12% own contribution and 12% employer's contribution) whereas in PPF maximu limit you can invest is Rs.1.50 Lacs which will work out to be 2.10 Crore that too if entire limit is exhausted from day 1 of Rs.1.50 lacs. So his shortfall would be Rs.3.12 Crore.

I know Salary, EPF corpus, Expenses  and Salary growth rate would vary from individual to individual, but purpose is to demonstrate and make investor aware that only EPF or PPF corpus will not suffice their retirement needs.So plan your retirement much before you hit it to make it the best period of your life.

It is always advisable to calculate the retirement corpus required either yourself or may be through a professional financial planner and try achieving that instead of playing blind. If

Prime Minsiter tries to secure your retirement by pushing NPS

One more admirable initiative of Modi governemt is providing a Philip to New Pension Scheme or National Pension System. Additional tax rebate is proposed in budget'15 under section 80CCD for investment upto Rs.50000.00. 

I don’t think it will transform into a big corpus which will take care of retirement,but will help to create awareness for retirement planning.

The generation of whats app, flipkart, and pizza hut needs to understand that we are not provided by any assured retired benefit and have to accumulate our retirement fund on our own. So if you have not yet seriously given a thought to Retirement planning start atleast with NPS now..

Let’s understand some of the aspects of the schemes : 

• What is the New Pension Scheme? 
• How it works? 
• What are Tier I and Tier II accounts in the NPS? 
• What are the three categories in the NPS? 
• Fees and Expenses related to the NPS? 
• What is the minimum amount needed to invest in the NPS? 
• What are the tax implications of NPS? 
• How can I open a NPS account? 
• Guarantee of returns under NPS?
• Who will pay the pension?

What is the New Pension Scheme?

The NPS was introduced by the government to give people a way to get a pension during their old age. Employees of the government sector already get a pension, so this scheme was introduced as a social security measure that enables people from the unorganized sector to draw a pension as well.

The working mechanism is quite simple – you contribute a certain sum every month during your working years, which is then invested according to your preference. You can then withdraw the money when you retire i.e.60 years of age.

How it Works ?

You can enroll in the NPS at any time if you are a citizen of India and at least 18 years of age; no entry is, however, allowed after 60 years of age. You should take advantage of compounding of your wealth by starting right away.

The earlier you start, the greater will be the growth of your pension wealth.

Under NPS, how your money is invested will depend upon your own choice. NPS offers you a number of fund managers (six) and multiple investment options (three) to choose from. In case you do not want to exercise a choice as regards asset allocation, your money will be invested as per the “Auto Choice” option.

You can open an NPS account with authorized branches of service providers called ‘Points of Presence’ (POPs).

You have the option to shift from one branch to another branch of a POP at your convenience.

What are Tier I and Tier II accounts in the NPS?

Like any other pension NPS is meant to be a pension scheme, so the basic purpose of it is to give you a steady stream of income on your retirement.

Tier I and Tier II are two options under the scheme where you can invest your money, the primary difference between them is how they differ in allowing you to withdraw your money before retirement.

NPS Tier I

There is severe restriction on withdrawing your money before the age of 60, because it is necessary to invest 80% of your money in an annuity with Insurance Regulatory Development Authority (IRDA) if you withdraw before 60. You can keep the remaining 20% with you.

When you attain the age of 60, you have to invest at least 40% in an annuity with IRDA regd. Insurance co., the remaining can be withdrawn in lump-sum or in a phased manner.

Here are the details of how your money can be withdrawn in a NPS Tier I account.

When can a subscriber withdraw the amount

NPS Tier II Account

You need to have a Tier I account in order to open a Tier II account.

The Tier II account makes it easy for you to withdraw your money before retirement because there is no limit on the withdrawals you can make from the Tier II account.

You need to maintain a minimum balance of Rs. 2,000, and you can transfer money from the Tier II account to Tier I account, but not the other way around.

There is a Rs. 350 CRA (Credit Record Keeping Agency) charge which is not present in the Tier II account, but the rest of the fees remain the same.

Asset Allocation and Categories in the NPS

There is an Active Choice option, and an Auto Choice option. 

Active choice - In the Active Choice you can select how much of your money will be invested in the different classes with a cap of 50% in Class E (Equity).

Auto choice - Your money is invested in a certain percentage in the various classes based on your age. 

At the lowest age of entry (18years), 50% - E Class, 30% - C Class and 20% - G Class.These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36. From age 36 onwards, the weight in “E” and“C” asset class will decrease annually and the weight in “G” class willincrease annually till it reaches 10% in “E”, 10% in “C” and 80% in “G”class at age 55.

Here are the three investment classes:

In either of these options you have to select the fund manager who will manage your fund. Choice of fund manages available is as follows:

ICICI Prudential Pension Funds Management Company Limited

IDFC Pension Fund Management Company Limited

Kotak Mahindra Pension Fund Limited

Reliance Capital Pension Fund Limited

SBI Pension Funds Private Limited

UTI Retirement Solutions Limited

Fees and Costs related to the NPS

There are some expenses associated with NPS list of which is as follows :

*Service tax and other levies, as applicable, will be levied as per the existing tax laws.

What is the minimum amount needed to invest in the NPS?

For a Tier I NPS account you need to contribute a minimum of Rs. 6,000 per year, and make at least 4 contributions in a year. The minimum amount per contribution can be Rs. 500.

Minimum amount for opening Tier II account is Rs. 1,000, minimum balance at the end of a year is Rs. 2,000, and you need to make at least 4 contributions in a year.

What are the tax implications of NPS?

Although you get tax rebate as per proposed tax laws, but withdrawals and pension would be taxed at marginal tax rate.

How can I open a NPS account?

You can open a NPS account by going to the bank branches of the banks that are authorized to sell this.

No Guarantee of returns under NPS?

It doesn’t guarantee you any assured returns , but as expenses are very low and due to professional management you can expect optimal returns.

Who will pay the pension?

Remember NPS will not pay you pension directly, but would offer you to choose and transfer your accumulated wealth to any of the insurance co. Registered with IRDA and offering immediate annuity products.

ABM View-

Keep in mind that NPS won’t pay you a pension directly, the rate of return is not fixed and a withdrawal as well as pension is taxable. But as expenses are very low it has capacity of generating good returns as per the class you are invested in. If you are a conservative investor falling in top tax bracket and have not planned for any other investments for retirement apart from EPF or PPF then should go for it.

Real Life case study on Retirement Planning of one of my client in Times Dtd.13/01/2015

https://www.dropbox.com/s/r4tg9lm91z68phy/TOI%20-Jan%2013%2C2015-%20Retirement%20PlanningDB.pdf?dl=0

My Times of India Article 23/9/14 on "Goals and Risk Tolerance"

"First Figure out your Goals, Risk Tolerance"

ABM Investment Views published in "TIMES OF INDIA", Mumbai edition June 10,2014

To view click on link below :

https://docs.google.com/file/d/0B5Vaf3Lc5zYgbUdRTzQxYUdaVFZtYWlMTFd3el8xelBKRjg0/edit