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

Is it time to overboard Real Estate

Returns from real estate (residential)

Real returns from real estate (city-wise residential)

(Source: http://www.wealthforumezine.net/AMCSpeakTATAMF100415.html#.VTRo-1KlTIX. Thanks tohttps://twitter.com/alphaideas )

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.

More reason to cheer for Proud Parents of a girl Child

Lakshmi is the Goddess of wealth, and it is believed that a girl child will bring prosperity and wealth to the family she is born in. 

Prime Minister Shri Narendra Modi also adds one reason to prove it. To show his commitment towards girl child and for the campaign “Beti Bachao, Beti Padhao” he has launched a scheme exclusively for a girl child named “Sukanya Samriddhi Yojana”.

I do not know the social outcome of the scheme, but for sure financially it is one of the best schemes for proud parents of a daughter.

Appending below Features of the scheme :

Salient Features of Sukanya Samriddhi Yojana

Who can open this account? - Parents or a legal guardian of a girl child who is 10 years of age or younger than that, can open this account in the name of the child. For initial operations of the scheme, one year grace period has been provided to make it 11 years of age. With this one year grace period in age, which is valid up to December 1, 2015, you can get this account opened for a girl child who is born between December 2, 2003 and December 1, 2004.

9.1% Tax-Free Rate of Interest - This scheme has been flagged off with a 9.1% rate of interest, higher than that of PPF which stands at 8.7%. But, this rate is not fixed at 9.1% for the whole tenure and is subject to a revision every financial year like all other small savings schemes, including PPF.

Prior to the budget announcement, 9.1% annual return seemed unattractive, but not anymore, as it has been made tax exempt now. Interest amount gets added to your balance amount in the account and compounded either monthly or annually, as per your choice. Monthly interest compounding will be done only on your balance amount on completed thousands.

Duration of the Scheme - The scheme will mature on completion of 21 years from the date of opening of the account. If the account is not closed on maturity after 21 years, the balance amount will continue to earn interest as specified for the scheme every year. In case the marriage of your daughter takes place before the maturity date i.e. completion of 21 years, the operation of this account will not be permitted beyond the date of her marriage and no interest will be payable beyond the date of marriage.

Deposit for 14 years only – Though the scheme has duration of 21 years, you are required to make contributions only for the first 14 years, after which you need not deposit any further amount and your account will keep earning the interest rate applicable for the remaining 7 years. 

Premature Closure - The account can also be closed prematurely as your daughter completes 18 years of age provided she gets married before the withdrawal. As the maximum permissible age of the girl child is set as 10 years, the scheme effectively carries a minimum duration of 8 years i.e. 18 years of exit age – 10 years of entry age.

Partial Withdrawal - It is also allowed to withdraw 50% of the balance standing at the end of the preceding financial year, but only after your daughter attains the age of 18 years. So, effectively it has a complete lock-in period of at least 8 years, before which you cannot take out any money for any purposes.

Minimum/Maximum Investment - You need to deposit a minimum of Rs. 1,000 in a financial year to keep your account active. Failure to do so will make your account inactive and it could be revived only after paying a penalty of Rs. 50 along with the minimum amount required to be deposited for that year, which currently stands at Rs. 1,000.

Also, you can invest a maximum of up to Rs. 1,50,000 in a financial year. You can make your contribution to this account in as many number of times as you like.

How many accounts can be opened? - You can open only one account in the name of one girl child and a maximum of two accounts in the name of two different children. However, you can open three accounts if you are blessed with twin girls on the second occasion or if the first birth itself results into three girl children.

Nomination Facility - Nomination facility is not available in this scheme. In an unfortunate event of the death of the girl child, the account will be closed immediately and the balance will be paid to the guardian of the account holder.

Documents Required - Birth Certificate of the girl child, along with the identity proof and residence proof of the guardian, are the mandatory documents required to open an account under this scheme. You can approach any post office or authorised branches of some of the commercial banks to get this account opened.

Sukanya Samriddhi Yojana vs. Public Provident Fund (PPF)

Budget 2015 has made this scheme quite attractive for the investors. If you are an investor who exhausts entire PPF limit by depositing Rs.150000 and want to save for your girl child’s marriage or higher education. Would recommend to first investing in this scheme and then to PPF, as this scheme provides you safe investment with much higher returns.

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 Dated 30/12/2014 on "Time to take New Year Resolution"

"Time to make some New Year Resolution"

My Times of India Article of 30/09/2014 on "Benefits of Diversification"

"Benefits of Diversification"

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

"First Figure out your Goals, Risk Tolerance"

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.

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.

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.

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.

Quote

"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?...it's OK, Bunk few classes, score low couple of papers, take leave from work, fall in love. fight a little with your spouse....it'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.

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

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.

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.

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.

Unquote-

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".

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. 

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.

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:http://www.rajtalati-abminvestment.blogspot.in/2014/01/calculating-rate-of-returns-before.html#links. 

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 :

Inputs:

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.

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.

Are you paying more tax then you are supposed to.....

For getting a bargain of some 100 Rupees we would travel 10 Km. But when it comes to check whether we are paying appropriate amount of tax we are supposed to we becomes lazy.

I have noticed while filing our tax returns we do not cross check the final calculation considering that our Accountant/Chartered Accountant or accounts deptt. must have done it correctly.

There is no doubt that above professional do their work efficiently, but we need to understand that they might not be aware of lot of expenses or investment which we made and are tax efficient. So it is our job to remain updated about the deductible/allowances and incentives allowed for tax . Also its our duty to provide the details to them in time.

I remember the year I bought my house, I was not having much of surplus section 80C investment, But I got the entire rebate because I was knowing that stamp duty paid for registry qualify for section 80C rebates,

Some of the deductibles/allowance/incentives I briefed in my last year's blog,http://www.rajtalati-abminvestment.blogspot.in/2012/09/save-tax-right-way-its-your-right-2012.html, please check for validity of certain clauses from your chartered accountant.

Appending below the slab rates applicable for Assessment year 2014-15 for ready reference.

Income Tax Rates applicable for Individuals, Hindu Undivided Family (HUF), Association of Persons (AOP) and Body of Individuals (BOI) in India is as under:

Assessment Year 2014-15, Relevant to Financial Year 2013-14 

For Individuals below 60 years age (including Woman Assessees): 

Income	Tax Rate
Upto 200,000	Nil
200,000 to 500,000	10% of the amount exceeding 200,000
500,000 to 1,000,000	Rs.30,000 + 20% of the amount exceeding 500,000
1,000,000 & above	Rs.130,000 + 30% of the amount exceeding 1,000,000

For Individuals aged 60 years and above but below 80 years (Senior Citizen):

Income	Tax Rate
Upto 250,000	Nil
250,000 to 500,000	10% of the amount exceeding 250,000
500,000 to 1,000,000	Rs.25,000 + 20% of the amount exceeding 500,000
1,000,000 & above	Rs.125,000 + 30% of the amount exceeding 1,000,000

For Individuals aged 80 years and above (Very Senior Citizen):

Income	Tax Rate
Upto 500,000	Nil
500,000 to 1,000,000	20% of the amount exceeding 500,000
1,000,000 & above	Rs.100,000 + 30% of the amount exceeding 1,000,000

Tax Credit: Rs. 2,000 for every person whose income doesn’t exceed Rs. 500,000

Surcharge on Income Tax: 10% of the Income Tax payable, in case the total taxable income exceeds Rs.10,000,000. Surcharge shall not exceed the amount of income that exceeds Rs.10,000,000.

Education Cess: 3% of Income Tax plus Surcharge

Professionals always work on the information provided by us. So it's our job to provide them with all the relevant information.