Wednesday, December 31, 2014

Time to make some NEW YEAR Resolutions

New Year is the time for celebration, gifts, drink and dance. But it also reminds you to take some resolutions, so that New Year can be better than the one just passed by. So this year let’s make some of the following resolutions to make a better managed financial life. It will help you to reach your financial goals.

1) Contingency Planning: First thing you should do is plan a contingency fund may be 3-6 months of your expenses, depending on kind of a job or business you are in. Always create and maintain an emergency fund. This is the only source which you can access in case of emergency may be medical or job loss.

2) Prioritise your Debts: Understand not all debt is same. Make list of all your debt and try to get rid of the ones against which you are paying highest rate of interest. It doesn’t make sense to invest your money in an Fd or Mutual fund when you are paying 30% interest on your credit card due.

3) Budgeting: If you haven’t make a budget then it is the time you should start making one. Budgeting help you to plan your bigger expenses and help you avoid impulsive buying.

4) Know your goals: Our tagline is “Aao Sapno Ko TARIKH De” which means first list down your dreams and then put a date by when or in which year I want to achieve it. To start any planning we need to list down what all we want to achieve. So this new year just make a list of financial goals you wish to achieve. Then break it into 2 parts i.e need and want. Needs are the one which in any circumstances you have to achieve e.g. your child’s education, Daughter’s marriage or your retirement. The balance left out will be your wants e.g. owning a vacation home, foreign trip every year etc. From the definition it is clear your needs will be given first priority and wants after that.
5) Clean up: Every investor investment bucket is filled up with the products advised by a friend, neighbor or a relative. Just review them whether they still holds some value. There are lot of better alternative products are available especially in mutual fund space. Which are transparent as well as cost and tax efficient. So close down all such products and switch it to better alternative. May be you need to pay some penalty today but in long term it can add multiples of such penalties to your wealth.
6) Know where you money goes: Gaining control of your financial situation and using money to help you reach your goals is possible, but first you must recognize where your money goes. Evaluate your habits. Start by jotting down everything you think you spend money on during a one-month period. Within the expenses differentiate between discretionary (e.g Eating our, Watching movies, replacing gadgets more frequently etc) and non discretionary (e.g. Electricity bill, Rent, Grocery etc). Start cutting down on discretionary expenses.

7) Avoid tips or offers giving assured, fixed and high returns: Remember every extra % of return offered over and above market return comes with that extra % of risk, so try to shy away from the schemes which doubles your money in very short span. Also check investments products you are investing in are regulated by govt. Appointed regulator and avoid ponzy or tip based investment. Your friend or relative might have recommended that but it is you who loses money when it bursts.

8) Consult a Financial Advisor: It is always beneficial in long run to seek professional help. In short run it might look like a cost but over a period of time, it would help you to avoid unnecessary investments. He will guide and a hand holds you during your financial journey and helps you reach your goals comfortably.

9) Do some Charity : Lastly do not forget to do some charity, help the people who are less fortunate. Remember we are lucky that we have access to the things which atleast 50% of the population don’t have.

So let’s create a bright future for ourselves and for the country. Wish you a very Happy and Prosperous New Year.

Saturday, August 9, 2014

How to restraint from being a member of CLUB 99

​Once upon a time, there lived a King who, despite his luxurious lifestyle, was neither happy nor content.

One day, the King came upon a servant who was singing happily while he worked. This fascinated the King; why was he, the Supreme Ruler of the Land, unhappy and gloomy, while a lowly servant had so much joy.

The King asked the servant, 'Why are you so happy?'

The man replied, 'Your Majesty, I am nothing but a servant, but my family and I don't need too much - just a roof over our heads and warm food to fill our tummies.'

The king was not satisfied with that reply. Later in the day, he sought the advice of his most trusted advisor. After hearing the King's woes and the servant's story, the advisor said, 'Your Majesty, I believe that the servant Has not been made part of The 99 Club.'

'The 99 Club? And what exactly is that?' the King inquired.

The advisor replied, 'Your Majesty, to truly know what The 99 Club is, place 99 Gold coins in a bag and leave it at this servant's doorstep.'

When the servant saw the bag, he took it into his house. When he opened the bag, he let out a great shout of joy... So many gold coins!

He began to count them. After several counts, he was at last convinced that there were 99 coins. He wondered, 'What could've happened to that last gold coin? Surely, no one would leave 99 coins!'

He looked everywhere he could, but that final coin was elusive. Finally, exhausted he decided that he was going to have to work harder than ever to earn that gold coin and complete his collection.

From that day, the servant's life was changed. He was overworked, horribly grumpy, and castigated his family for not helping him make that 100th gold coin. He stopped singing while he worked.

Witnessing this drastic transformation, the King was puzzled. When he sought his advisor's help, the advisor said, 'Your Majesty, the servant has now officially joined The 99 Club.'

He continued, 'The 99 Club is a name given to those people who have enough to be happy but are never contented, because they're always yearning and Striving for that extra 1, saying to themselves: 'Let me get that one final thing and then I will be happy for life.' We can be happy, even with very little in our lives, but the minute we're given something bigger and better, we want even more! We lose our sleep, our happiness, we hurt the people around us; all these as a price for our growing needs and desires.

Same is the situation with most of the investors, they are also engaged in converting 99 to hundred, without knowing they might need much lesser then that.

Financial planning is a big eye opener and will help you to avoid being an member of CLUB 99 and help you to live your life happily.

Thursday, July 10, 2014

Union Budget - Far cry for common man

Again entering to see one of the biggest event of the year i.e budget season. Just pick up any news paper or news channel you would find the discussion forums, expectations, reality and news related to Union Budget.

Budgeting is the first step and most important part of any Financial Planning. This is the time when we estimate income and expenses for the year and plan our Purchases, Investments, Vacation and Tax planning. Union budget is also the process by which government plans its income and expenses for the coming year.

Being a financial planner, I feel most of the household no more continue to have this process in place.This is the best time to realign our family budget date with that of union budget , so that we don't need to set any reminder and there are lot of sources available to remind us to do that.

It's better to give our time in preparing our own budget instead of watching what government is doing. 

Budgeting helps us in avoiding haphazard expenses in the months when our monthly exps. are less then  income and to avoid borrowing on credit card or opting for consumer loan in the months when outflow is higher then income. Would suggest to ear mark certain expenses which comes at intervals viz; childrens school/college fees, Insurance premiums, Tax outgo expected in last quarter of Financial year, Festival period exps , B'days, Anniversary, marriages etc., Distribute it to every month to avoid making unnecessary exps. in the months of surplus.

In any way we should concentrate more on the act which is in our control, whatever govt. does we do not have any control (upto a greater extent) and have to adjust whatever they decide. So it better to allocate our time in preparing our own family budget first and then enjoy fights on discussion forum of news channel.

Saturday, June 28, 2014

Increase your Happiness index together with wealth

Had opportunity to watch a fantastic movie this weekend named "Lunch Box" there were lot of good things about the movie. But I would like to share just one of the term they referred to i.e Gross National Happiness.

Every country in the world is running towards improving their Gross National product. But what if we get together and concentrate on improving Gross National Happiness. Interesting to know there is a country seating in our neighbor having population half of my city i.e Vadodara has done that. I am talking of Bhutan. YES Bhutan.

Gross national happiness resides in the belief  that the key to happiness is to be found, once basic material needs have been met, in emotional and spiritual growth. The concept of Gross National Happiness accordingly rejects the nation that there is a direct and unambiguous relationship between wealth and happiness. If such a relationship existed, it would follow that those in the richest countries should be the happiest in the world. We know that this is not the case. This marginal increase has also been accompanied by the growth of many social problems as well as such phenomena as stress-related diseases as well as suicides, surely the very antithesis of happiness. 

Bhutan seeks to establish a happy society, where people are safe, where everyone is guaranteed a decent livelihood, and where people enjoy universal access to good education and health care. It is a society where there is no pollution or violation of the environment, where there is no aggression and war, where inequalities do not exist, and where cultural values get strengthened everyday. A happy society is not a fatalistic society, but is built on hope and aspirations. It is also a more equal and compassionate society, where sharing and contentment come out of a positive sense of community feeling. A happy society is one where people enjoy freedoms, where there is no oppression, where art, music, dance, drama, and culture flourish.

We all are running without knowing where we need to reach. Specially our leaders they have never set and looked at how much money they would require to lead a most luxurious life which includes inheriting big chunk for their next generation. If they would do that exercise corruption figure will get down to some hundred crores from lakhs of crores.

Financial planner can contribute a lot to increase your level of happiness by making you aware about your future needs and goals. They lay down a plan to achieve your goals according to your risk profile, they secure your family's future. A clear vision, backed by definite plan, gives you a tremendous feeling of confidence and personal power. When you are confident about future financially, you become more happier and less greedy, which helps in giving quality time to family. I am of the belief that if we are happy and satisfied we make people around us more happier and a reason for happier society. We avoid doing unethical work.

Just think of the day when you got good bonus or an excellent salary hike. What is the first thing you do its share that happiness with your family you wont mind giving a raise to your housemaid or your sweeper after that. A chain of happiness starts. Why we need to have reasons like bonus and raise to be happy. They are temporary, start looking for permanent reasons.

Just a advise to raise your happiness index and together with that of countries Gross happiness index consult your financial planner and plan you future.
Very relevant speech forwarded to me by one of my client of  Mr.Ratan Tata at Symbiosis.

"Don't just have career or academic goals.Set goals to give you a balanced,successful life.Balanced means ensuring your health, relationship,mental peace are all in good order. 

There is no point of getting a promotion on the day of breakup,
There is no fun in driving a car if your back hurts,
Shopping is not enjoyable if your mind is full of tensions.
Don't take life seriously, Life is not meant to be taken seriously, as we are temporary here.

We are like prepaid card with limited validity. If we are lucky, we may last for another 50 years and 50 years is just 2500 weekends. Do we really need to get so worked up?'s OK, Bunk few classes, score low couple of papers, take leave from work, fall in love. fight a little with your's ok... 
We are people not programmed devices...! "Don't be serious enjoy life as it comes" Unquote.     

To remain happy is in our hand and don't allow external factors to affect it. Be happy and try to make people happier around you. Donate generously to less privileged, help others, take good care of environment.

Saturday, May 31, 2014

True example of WEALTH Creation

We are optimistic about "ACCHE DIN AANE WAALE HAIN.".

If last 20 years were not good then going by above phrase next 10 years are going to be extraordinary.Last almost 20 years have been the best days an investor can wish for but the problem is we ourselves are not confident of our economy and power of Young India.

Investors confidently invest in Gold, Corporate Fixed Deposit, FD of Co-operative bank and above all real estate.But when it comes to equity they shy away from it.

Demonstrating herewith how equity mutual funds in real life can create wealth for the investors.

"Reliance Growth Fund is an Equity Diversified fund launched 19 years back wherein its NAV has moved from Rs.10 to Rs.615.59 that means investor has multiplied his money 62 times.

It is evident that there is no other asset class which can beat performance of Equity and specially investments made through Mutual fund route. Many a times investor do compare returns of equity with real estate. 

Let's see the comparison - 

If one had invested Rs.10 lacs in this fund 19 years back it would have grown to 6.2 crores that too TAX FREE and to add some other benefit is liquidity, daily valuation,transparency, diversification, part redeemable, no legal cost or hurdles, well regulated etc etc...

I leave it to the real estate investor to evaluate that how much of them can confidently claim similar returns for their real estate portfolio as a whole.

Disclaimer : Performance of fund taken only for demonstration purpose, should not be considered as our recommendation. Please consult you adviser before investing.

Undoubtedly investor should allocate funds to different assets  according to time horizon and goals.But, Investors are very comfortable with investment in FD, Gold and Real estate but when it comes to Equities every one thinks that it is a speculative asset class. History has proved that you can speculate anything for a short period, but in long term fundamental works.

Many a times the excuse given for not investing in equity is of lower risk profile, but we forget that risk profile is evaluated on 3 aspect i.e Willingness,Ability and Need. The most important aspect with most of the individuals is Need, may be they are not willing to take risk and might not have ability as well. But in today's high inflationary scenario everyone's NEED should make them a equity investor. For today's investor equity is not an option but a necessity.

So evaluate your future needs, make equity mutual funds your friend for wealth creation,but in consultation with your financial advisor.

Saturday, May 3, 2014

Interest of FD not TAX FREE for investment made in your spouse name out of your income

In our married life whether we share good moments or not, but one thing we all share is our income and invest it in the name of spouse. But we need to understand that investments made in the name of spouse out of our income may not be tax free.

Section 60 to 64 of income tax act lays down details regarding clubbing of incomes. 

What is clubbing of income : Many a times we open a fixed deposit in the name of spouse or minor child and think income or interest earned is not taxable as they are in lower or nil tax bracket. 
But unfortunately this is not true. Although it is correct that you can gift any amount to your spouse without any tax. But the gifted amounts Interest or any other income, earned by  spouse from gifts is to be included in your income for tax purposes.The only exception is if you are separated from your spouse and the transfer is in connection with the agreement to live apart. 

These measures have obviously been taken to stop tax evasion by falsely showing gifts. The transferor is liable to pay tax on income from the gift in the following situations: 

l. Transfer of income without transfer of underlying asset. For instance, you are the owner of a house, which is rented out. You may arrange that the rent be paid to your spouse, parents or sister for their benefit, but rent would be added to your income and tax you on it as the asset is still owned by you. 

2. Transfer of income producing assets is revocable within the lifetime of transferee. In the above example, you may transfer the house along with the income, but if this transfer is reversible, the income shall still be taxed as your income.

The following types of transactions will also attract clubbing. These are specific to your spouse and your daughter-in-law.

a). Income from assets transferred to daughter-in-law.
b). Income from assets transferred to any third person for benefit of spouse.
c). Income from any assets transferred to a third person for the benefit of daughter-in-law. Even the capital gains arising from sale of such gifted assets by the spouse get clubbed in your hands. 

There are certain ways by which you can save yourself from clubbing :

a). Gift to major son or daughter, or to son-in-law. Gifts to minors are always clubbed. Incidentally, this means that if you want to create wealth for your children, only gives them assets that will generate income after they turn major.
b) Gift to grandchildren.
c) Gifting away tax-free income bearing instruments such as RBI Bonds and other tax-free bonds.
d) Giving interest free loans to your adult children so as to legally reduce your taxable income.
e)If husband is in higher tax bracket then he can transfer a certain sum to his wife in exchange of her jewellery. She can open a FD and interest would be taxed in her hand.(She would start loving you more as you become owner of her jewellery)
f)Gift even if the income is clubbed. Since income on income is not clubbed. It would become advantageous in long run if you earning is high and your spouse  income is nil or low.

So in future before making any investments in your spouse name do check for taxability of income earned on it.

Saturday, April 19, 2014

It's your Life - Make It LARGE

Every individual's what he is today is result of small things which he/she did in past, same is very well narrated by Superstar King Khan in one of the recent commercial : I Quote -

"Large kab banta hain, Woh pehla break large lagta tha,
Woh pehla role, Woh pehli Gaadi,
Pehli Girlfriend?,
Bachpan ki galiya large lagti thi, theatre ka stage,
uh a - us waqt to small screen bhi mere liye large thi,
20-50 log taaliya mar dete, large lagta tha,
Lekin aaj wohi sab, CHOTA lagta hain,
Jo haanth lag jaye woh kya large,
Lekin LARGE banta hain UNHI CHOTI cheezo se,
Small Milate Jao large banate Jao,
Its your Life MAKE IT LARGE.
If we go through our past we will find above lines are very relevant for each one of us, what ever we are today is the result of the small small right or wrong things we did in past.

Each one of us can narrate a similar experience of their past, it looks like a dream that how by TIME this small decisions becomes so big for us. Every one of us must be at higher level from where they started. The people who are at start of their career will be at much higher position then at which they are today, if they continue giving there efforts sincerely.

Similar is the case of SIP (Systematic Investment Plan) - It is small small amount which you contribute regularly on monthly basis for years and without our knowing by time it grows much bigger then our expectation.

As an advisor I always advise my clients that every individual who has an asset need to write a will or every individual who is earning and having dependents needs to have a life insurance.

Similarly, I feel each and every individual who is not blessed by legacy of wealth needs to have an SIP. It will help them to achieve there goals and dreams by just contributing small amount over years effortlessly. So whether you wish to invest for your child's marriage or education, for a house or retirement or for a foreign tour or charity what you need is an SIP and time by your side.

Many a times investor feels SIP means equity/shares but they can do it in a fixed income or Gold fund depending on their risk profile and needs.

So if you have not started one yet, start it today aur aap bhi "Small milate jao or LARGE banate jao - It's your life, make it LARGE".

Saturday, January 25, 2014

Avoid investing only on the basis of past performance

It is a common practice that we invest in a best performing funds and the day we invest its under performance starts. It seems that bad luck was just waiting for us to invest. Fact is lot of other factors are also involved in selecting a good fund apart from the luck or past performance.

Let's see the other factors which plays important role in performance of your fund :

1) Fund House - First of all we need to assess the fund management team, to ensure that the money we are investing is in safe hands. Need to check that how stable is fund management team,Experience of Fund Management Team (Across Cycles),Does fund manager instill a high level of confidence in communication. How seriously fund house takes their fund management business..

2) Investment Philosophy - How clearly the fund philosophy is defined, e.g fund would be managed in growth style, value style, dynamic, thematic etc... Also understand advantages and disadvantages of particular philosophy.

3) Process - Most important aspect in life to achieve anything with minimum error is to adopt a process. Whenever you follow a process things move systematically and achieving goals become easy. 

Similarly for investment  we need to check that fund house is strictly following some process or not. Many a times in past it has happened that fund house leaves everything on a STAR fund manager instead of following a process.It does work in favour in a particular market condition but when situation changes the fund becomes the worst performer. So need to check on following points

Is there a well laid down , comprehensive process in place ?
How much flexibility does the fund manager has in decision making?
How are stocks researched?
How adequate and effective is the risk management process?

4) Portfolio - Whatever is described in above three points should reflect in the portfolio formed by a fund manager.

The stocks/Sectors selected and portfolio turnover is true to its mandate?
What is concentration risk in the portfolio?
Sufficient rationale for areas of concern?

5) Performance - The last but not the least important is Past performance. I believe that performance is the product of above 4 steps. If any fund house/fund has got them in place performance is going to follow. May be in short term other fund might take over but in long term it would emerge as a star. 

Next time whenever you select a fund do proper homework or hire a Financial planner who can do it on your behalf. 

Saturday, January 18, 2014

Financial Mathematics:Magical Numbers 72,114 and 144

It is always a tedious job to calculate rate of return on various products to take investment decisions.

In financial mathematics there are certain magical numbers which would help you in calculating the rate of return for doubling,tripling or quadrupling or if rate of return is available it can help you to calculate time required to double, triple or quadruple your capital

Let us find out how :

Take an example of Mr.Doguna who has been advised by one of his agent that there is an investment opportunity whereby he can double his money in 8 years. Now Mr.Doguna wishes to calculate the rate of return of the same. 

What he need to do is just divide 72 by the no. of years. i.e. 72/8 = 9%. 

So the approximate rate of return would be 9%.Although it doesn't give an exact result but you can have a rough calculation by doing this.

Lets say Mr.Doguna got an rate of interest of 12% and now he wishes to calculate the time period required to double his amount then he need to divide 72 by rate of interest i.e.

72/12 = 6 years (approx.)

Similarly you can calculate period/rate to triple your money by dividing 114 by the available variable and to quadruple replace magical no.114 by 144. 

for example if you wish to triple your money in 12 years required rate of interest would be 114/12= 9.50%.

To quadruple your money in 16 years required rate of return would be 144/16 = 9%.

In above example if rate of return is available and you wish to calculate time period divide magical nos. by rate of return.

Hope, above nos, will help you to make certain calculations on your fingertip without depending on software, excel sheet or financial calculators to take informed decisions.

Saturday, January 11, 2014

Financial Mathematics - "Itni Shiddat se maine tujhe pane ki koshish ki hai, ki har zarre ne mujhe tumse milane ki saazish ki hai".

Very rightly said that "Journey of thousand miles starts with a single step".Same way to achieve big goals in life the first step is to start with basic i.e.decide your goals/dreams or aspirations in life.

Just list down whatever you think without thinking ki "Yeh kaha se hoga". (Had we ever thought that people would be booking tickets to travel mars).

Many a times investor tells me it doesn't make sense to plan, as I don't have any surplus funds. I ask them forget what you have atleast make a list of goals you want to achieve and as soon as you make that list and refer it on regular basis, your goals themselves finds way for required investment.

You will automatically cut down on discretionary or unnecessary expenses. It will act as an alarm "That if you buy the things which you don't need today, may be tomorrow you will not be able to buy the things you need". It will motivate you to work more efficiently to grow in your career or business.For sure, the passion and better planning will make you reach your goals Like SRK says "Itni Shiddat se maine tujhe pane ki koshish ki hai, ki har zarre ne mujhe tumse milane ki saazish ki hai".

After first step of deciding goals, it requires you to put time left and amount required for it.

Today we will learn how to inflate present goals cost to future value, so that we don't end up receiving the value which do not meet the requirement as briefed in my earlier blog:

In addition to that we will also learn how to calculate annual investment required to reach that value :

Let's take an example of Mr.Sapnelal who wish to plan for marriage of her daughter Ms.Dreamgirl 18 year hence. Present exps. according to kind of wedding he wish to plan for is Rs.800000.00. He expects inflation during this period will be around 7%.

First of all open an excel sheet and go on "insert" select "Function" and in "window search for function" type "FV".Following window will open :


Rate - It is the rate of return/inflation considered in our case it would be 7%

NPER is no. of period - In our case it is 18 years.

PMT Payment - It asks for Periodic payments you wish to make for the goal. As we want to learn how to calculate Periodic payment in next step we will keep this as blank.

PV - This is the present value of goal in our case it is Rs.800000.00.As it shows investment (Money going from our pocket) a  -ve sign to put in front of it.

Let's insert the data in above field. The result will reflect at the bottom (above the Blue highlighted line Help on this function") under Formula result as follows :

The amount required after 18 years would be Rs.2703945.82.

Now,let's see how to calculate annual amount required to be invested or periodic investment required to achieve goal of Ms. Dreamgirl's marriage.

Mr.Sapnelal risk profile is aggressive and as the period of investment is also longer he wishes to make this entire annual contribution to equity and he expects equity to give him atleast 15% return on his investment.

So. let's calculate the per annum amount required to be invested.

First of all open an excel sheet and go on "insert" select "Function" and in "window search for function" type "PMT".Following window will open :

As detailed above put the data in fileds as follows :

Rate - As Sapnelal wishes to invest the amount in equity and expects to get a return of 15%. Enter 15% against Rate.

NPER - Enter 18 as maturity is required after 18 years for Dreamgirl's marriage

PV - Enter the lumpsum amount if you wish to invest initially together with the annual amount. In our case its nil so will keep it blank.

FV - From the first calculation we got this amount which we want to achieve i.e. 2703945.82.

Type - If you wish to make contribution at start of the year then put 1 and in case of end put 0.In our case it at the beginning of the year so enter 1.

After inserting all the above details result i.e. annual requirement will reflect as follows :
So the required amount is Rs.31004.35 it is showing as negative because it is going out of our pocket or we need to make this investment.

The best part is just by changing the figures in rate you can see the value of annual investment required. If you wish to achieve your goal by investing in a bank FD and expects to get a return of 9%. Your annual investment required will become Rs.60063..04.

So plan your investment in better way irrespective of what your name means- So being Mr.Sapnelal, enjoy marriage of daughter Dreamgirl the way it was planned.

Saturday, January 4, 2014

Financial Mathematics -Calculating rate of returns before investment - Let's learn how

It's a common practice in financial industry that products are sold by projecting maturity value. Reason is human mind always looks at maturity value in today's term, but forget to measure impact of inflation and rise in expenses due to standard of living. We just get obsessed with the higher absolute value and forget the actual return it generates. Instead of focusing on maturity value if we start concentrating on returns we can take much better decision. Illustrating how just looking at maturity value can make our plans a haywire and that too when we actually in need of it.

One of my friend Vivek bought an Life Insurance policy for his son's education in the year 1999 for an 18 year term on becoming a proud father. The TOTAL cost for a good engineering course was almost Rs.40000 at that time.Let me remind you during late 90's a person at senior executive level used to get salary in range of Rs.20000 to 40000 pm. Household exps. for a family of 4 for an average middle class person was in the range of Rs.4000 to Rs.5000 pm. 

With an intention that his son should not compromise during his engineering studies he planned for an maturity of Rs.1 Lac, for which was required to pay premium of Rs.3000 equal to his one month Exp. or 75% of his monthly salary.

Inspite of planning for double the amount required. When his son will reach in STD 12th i.e in the year 2017, I doubt whether he would be able to pay even the tuition and entrance examination fees for engineering courses with maturity of above policy.

Biggest reason was he thought everything in 1999's context and he thought by paying Rs.3000 which was a big amount for him at that point in time he has secured his child's education.  As against that if he would have calculated the returns he might have understood its meager 7% per annum.

Let's learn how to calculate returns so that we do not face such problems.

Open an excel sheet and go on "Insert" select 'Function' under category select "Financial" and in window search for function type "Rate". The following box will appear after clicking OK.

Inputs ;
NPER is no. of period - In Vivek's case NPER is 18 years i.e tenure of payment. In case frequency of payment is Monthly multiply it by 12,in case of Quarterly by 4 and for Half yearly by 2.

PMT Payment - periodic payments or regular payment e.g Insurance Premium, EMI Installment, Monthly Post recurring Amt. etc.In case of an FD (Its Only 1 time Payment) so leave this filed blank.
In case of Vivek it is Rs.-3000.00. In case we are making payment that should be shown as (-) and receiving money should be shown as (+) or nothing.

PV - This field should be used in case of single or one time payment like for FD,Bonds, MF investment etc.In our case as it is periodic investment we will keep it blank.

FV - This is the desired corpus or the maturity amount product offers or required.As funds are flowing in we need not put any sign before it. 

Type - Applicable only in case of periodic or regular payment. In case you are paying in advance then you should put 1 and in case of end put 0.In our example it is 1 as we pay premium in advance.

Guess - It is not visible in above picture but in excel sheet when you will scroll down you will find it, no need to put anything in it. But in case any error comes then you should put approx. return which you think it would give. Most of the time you do not require to provide anything in this field.

Let's put above data and find the result which would be as follows :
You can see the Formula result as 7% at the bottom. In case frequency is taken as Half Yearly you need to multiply result with 2, for Quarterly by 4 and in case of Monthly by 12.

In this way you can calculate Interest on EMI and returns on FD, SIP, Insurance Policy etc...

While planning do not forget to consider effect of inflation and rise in exps. due to standard of leaving.