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We all have read a lot about various financial products that help you in creating and protecting wealth. But there also exist lot of products or say practices which often lead to wealth destruction.

Each and every product and asset class has it’s unique features, but it is important to understand that every asset class is different from the other and is having it’s own peculiar risks. If you play with an asset class in a wrong way, it can destruct your wealth in a big way rather than creating it for you. Let’s have a look at some of the practices, which help in losing money.

Stock Market speculation:
Stock Market speculation or Day trading, simply put is the activity of buying and selling the shares for a very short duration without taking any deliveries with a purpose to gain from the daily volatility in the stock prices. Day trading is the most common practice followed by new entrants into Equity investing. It is the most exciting feature as the prospect of making millions by sitting in front of the screen and just guessing the right prices is a mouth watering one. Always remember that fluctuations in share prices during the day does not truly represent the functioning of the company. The person who makes the most money through day trading is the broker. For an investor, the chances of making money in day trading are as good as winning a toss. The greatest investors in the history like Warren Buffent, John Templeton, etc. have created wealth not by guessing price movements but by making fundamental long term investment decisions.

Investing in FD’s which double your money over 6-8 years:
Investors are obsessed with the safety of their investments and jump on any product giving guaranteed returns. Fixed Deposits as an asset class are good for short term investments of 1-2 years. By doing an FD for a tenure of 6-8 years investor only ends up losing money as the value of money also keeps on declining due to inflation. So, if you have got a return of 8.5% on your FD and the inflation during the period was 8%, your actual rate of return is 0.5%. Take taxes into account and your return is negative. So, if you are investing for 6-8 years you are increasing your negative returns for that long a period.

Derivative Trading:
Futures & Options are available in the stock market for the purpose of a better price discovery and for hedging your investments. Unfortunately, these derivatives are used as tools for making quick money and they turn out to be more dangerous than day trading. In derivative trading you can trade for 2-5 times more than the money you have. So if you are having Rs. 100, you can trade for Rs. 500 through derivatives. So with the same investment you can make 5 times more profit (and conversely 5 times more losses, wiping out your capital). Derivatives are for use of professionals and playing in them without their guidance can be highly dangerous.

Keeping cash: 
Another Myth for keeping money safe, is to keep it in cash. Cash not only has it’s own risks for storage but is also the only asset class which gives “0” returns. The value or the purchasing power of your cash goes down on a continuous basis due to inflation. This can be best understood, if you list down the items which could have been bought in Rs. 100, 10 years back and the price of those items now. You should keep cash only for the purpose of ensuring your basic needs. With the advent of ATM, cash is now readily available round the clock at an ATM near you, so better to keep it in your bank account rather than keeping huge quantities at your home.

Using your credit card as free money instrument: Credit cards are most widely used instruments these days in place of cash. It gives lot of convenience as you don’t need to pay at the time of purchase. Infact, you enjoy an interest free period of upto 45-60 days on your purchases. But many a times, people tend to overspend on the credit card. It is important to pay your dues back on time, else you can be subjected to interest rates as high as 3.5% compounding per month (which works out to an annual rate of 51% interest). Never fall in the trap of skipping your credit card payments or paying “minimum amount due” as you start getting charged heftily on all transactions done then on. The interest rates are so high that if you default you might end up paying higher interest than the principal amount. Though, if you keep paying on time, there is no better option than a credit card. Besides you also keep earning reward points for the money spent by you.

It may take you long time to create your wealth, but to lose it can be done in a matter of seconds. It is better to stay away from practices that can erode your wealth and make good use of every product available in the right way. That way, we will not only save wealth but also will be able to sleep peacefully.

Young adults are perhaps the richest among all of us. They have something more than all of us – “time” at an age when the possibilities are unlimited. In case you are an young adult in 20s or 30s or a parent / guardian with children approaching or in their 20s, this article is for you. The article tells us few things which perhaps we were never told when we were young. We bring to you six valuable tips that can literally make a huge impact in lives of young adults going forward.

Learn about Personal Finance & Investing:
Knowledge about personal finance topics and investing at an early age is a great asset. Young adults must know about different asset classes, investment products, insurance, loans & credit, time value of money, inflation, savings, taxation, financial planning, etc. Such knowledge, especially during early years of career can really help someone take great decisions for future. If you are a guardian, be sure to involve the young adults in your own investment decisions. There are many ways in which young adults can gain financial knowledge. Some of the ways are…

• read books, finance magazines and watch TV shows on investments
• interact with financial advisors, accountants, experienced family members
• attend investment seminars/ camps by regulators, participants in financial services industry
• enroll for any certification from the many offered by NSE/ BSE on the subject matter

Control your spendings
Young adults are perhaps the most valued consumers hunted by every big brand ranging from cars to shoes to laptops to even holiday packages. With the newly gained earning power and lack of big responsibilities, it is natural that spendings on entertainment, gadgets, accessories, hanging out / parties, etc. form a big chunk of the spendings. Surely it is a time to enjoy life but young adults are advised to control their urge to spurge and not make impulsive decisions. It would be great if one can budget such spendings and avoid taking big decisions like buying of motorbikes, cars, laptops, etc. without adequate thinking and research.

Start investing immediately:
We have often spoken on this topic. The benefit of saving early can never be under estimated. Even if the savings is small, due to the power of compounding, the wealth created by you can be enormous, as seen from the following matrix.

Particulars Mr. Smart Mr. Lazy Age when savings is started 25 years 30 years Monthly savings amount # Rs.1,000/- Rs.2,000/- Investment horizon 10 years 5 years Total amount saved Rs.1,20,000/- Rs.1,20,000/- Wealth Created at Age 35 yrs * ~ Rs.2,63,000/- ~ Rs.1,75,000/- Times roll-over 2.19 1.46 # Assuming SIP in a Mutual Fund Diversified Equity Scheme is done. * Assuming average returns @ 15% p.a.

In above e.g., Mr. Lazy would have to invest thrice the amount or Rs.3,000 monthly saved by Mr. Smart if he wants to match the wealth created by him at age 35.

Get PAN & start filing tax returns:
If you have started earning, it is best to start preparing & filing income tax returns (ITR) except when you are exempted to do so. There is a perception that if the taxes are paid, there is no need to file ITR. This is a misconception and it is essential to know that it is our constitutional obligation to file ITR when you are required to do so. Further still many believe that their incomes are too small to attract the attention of IT authorities and get tax scrutiny and hence may indulge in not filing returns or understating income. You may note that IT authorities uses a system whereby cases are picked up randomly on certain criteria. You may never like to be the one to get short-listed and invite unnecessary hassles. Remember that you are permitted to save taxes but not evade taxes.

Filling of ITR has many advantages as they are considered standard income proof globally and they help you while applying for loans, visa applications for jobs abroad, requesting tax refunds, etc. The PAN issued by IT authority is a prerequisite for filing ITR and is also mandatory for all financial transactions. So it makes sense to get yourself one even if you don’t have much income to talk of.

Get health & life cover
Getting adequate protection in young age, where people tend to be more adventurous, is highly advised, even if there aren’t any dependents on you. Buying health or life cover at a younger age is also considerably cheaper than buying the same after few years. Such protection can really help one in case there is any unforeseen emergency and financial burden on parents will be avoided.

Start thinking about home
The average age of home & car buyers has decreased dramatically in the last 20 years. Powered by easy availability of loans, fat pay packages & growing aspirations, the first time home buyer today is often around the age of 30. The first time car buyers are even younger. It would thus be best advised that young adults keep these goals in mind and start saving as much as possible for home & car goals, if any, from now onwards. It would really benefit you a lot when the time comes for purchase in near future. Often young adults delay saving for the goal and end up paying lesser down-payments and taking higher amount of loans which should be avoided. Lastly, even if you have a home of your own, it is advisable to think of buying a home as an investment for future and also enjoy tax benefits on same.

Conclusion:
Having time on your side is a great advantage and never to be missed. Few young adults may choose to ignore & not act on 6 tips shared above at their own peril. Experience has shown that wise decisions, actions and discipline in these formative years go a long way in securing a better financial future down the line. Simple actions taken today can help you avoid taking tough decisions at times when you have family to support and lot of responsibilities on your hands. So go ahead and make the best that this time has be offer, smartly.

Investing in simple but not easy. We are often in a dilemma as to what approach to adopt for investing. An average investor on the street is likely to be direction-less about investing and would not likely have any clue as to the purpose or goal of investing. What is needed is a simple approach which we can easily understand & follow while managing our investments. While there can be many different approaches that can be adopted given the different situations or purposes of investment, we present one approach that can stand true for most investors.

THE INVESTMENT APPROACH :

An investment approach has to be relevant and reliable for investors at different times and different financial conditions. It should take into consideration the financial objectives of an average investor into consideration. The attached image represents one such approach to investing that can be followed in our investments. The following are the key elements that form a part of this approach.

LONG TERM GOALS :

The long term goals or funding needs of an investor should be at the heart of any investment planning. There are quite a few long term goals which we see in our lives. Goals like education and marriage for children, purchase of home and car and retirement for self and spouse are the goals that must be in focus. Depending on the family priorities, other goals can also be taken into consideration.

As a first step, we should identify our long term goals by quantifying amount needed, time horizon and savings potential. Accordingly, we should invest in assets that give us the best possible wealth creation opportunity in long-term so that we can achieve our goals.

 

RISK APPETITE:

After accounting for your long term goals, the next element is identifying your risk appetite or your ability to take risks in investments. For eg., the risk appetite for a 25 year old and a retired person differs largely. Note that we are talking about risk appetite after planning for long term goals because one, we cannot afford to compromise on our life goals and secondly, the risk from equities reduces and returns are more predicable in long term than short term. A person’s risk appetite can be identified, for the sake of simplicity, as aggressive or moderate or conservative. This would take into account your financial ability and your mental appetite to take risks and bear losses. This input will be important for identifying asset classes for ongoing /regular investments which are not directly linked to any goals in life.

REGULAR INVESTMENTS :

Ongoing or regular investments are generally of short to medium term time horizon and not linked to any life goals. There are three things you should keep in mind for these investments which will continue during your entire life…

1. Liquidity: At least some part of your investments must be liquid enough so that when you need any money, you are not helpless. Financial planners often talk of an Emergency Fund to be kept which can be equivalent of 3 to 6 months of your household expenses to tide over any emergency situation. Further, for investment purposes, it is recommended that money should be put in avenues that are liquid in nature rather than physical like property and precious metals. This will provide more safety, transparency and control while saving storage and maintenance costs.

2. Asset Mix: While making regular investments you should consider your risk appetite and then identify a proper mix of different asset classes and also the underlying products. You may also design your asset and product mix keeping your tax planing in mind or as per your other financial objectives. Having a proper coverage of your assets is very important before we actually talk about arriving at an asset mix. Most of the time, we ignore to consider physical investments and investments into debt products like PPF, Post office small savings, etc. while arriving at our asset mix. An asset mix has to consider all such assets to be meaningful for you. improvement in your investment plans.

CONCLUSION :

Planning for long-term goals should be at the starting point of our investments and also at the heart of it till we do not exhaust all our long-term goals, including retirement and inheritance. Only after planning for those responsibilities can we look forward to making investments as per our risk appetite and for meeting other general financial objectives. Our investment approach should be centered around these pillars to ensure successful investment outcomes. To begin with, let us first try and remember the image of the investment approach we just read about.

Your Investment Goal :
The beginning point of any investment has to be you and your needs. Having a predefined goal or objective is crucial for shaping your portfolio and if you haven’t given it a serious thought, we suggest that you do it as a mandatory exercise. A goal setting exercise can normally be anything from the following list and even beyond…

• Saving for a life goal like retirement, child’s
• marriage, purchase of house, etc.
• Creating X amount of wealth in future…
• Arranging for regular income
• Protection of wealth over time
• Parking of funds for brief period of time
• Tax savings coupled with wealth creation

Scheme Category/Style Universe :
After finalizing the investment goal and objective, the next task is to shortlist the mutual fund scheme category/style depending on the investment horizon and your risk appetite. The scheme risk classification, based on uniform standards in the industry, can be used as a reference point to match to your personal risk profile. There are many categories of mutual funds available with primary underlying asset classes of debt and equity and varying mixtures of both.

The allocation between equity and debt should match your risk appetite and time horizon. Investing across different schemes and asset classes is a good idea for diversification of risks as they have their own risk-return trade-offs and advantages /disadvantages. If you are planning for specific investment /financial goals, they are however likely to dictate the type of schemes you will have to invest in. Once the investment objective is defined, it is now important to select the schemes and the investment/ withdrawal options to match the needs.

Fund House Universe :
There are around 40 fund houses in India offering their services. A fund house is at the heart of your mutual fund investing experience and performance of the schemes. When we invest in a scheme, we give a mandate to the fund house to manage the money on our behalf. There are fund houses specializing in different asset classes and also the scheme performance of the top and the bottom fund houses differs significantly. Knowing and selecting the right the fund house universe is thus important.

The fund selection focuses on the parentage, management quality, experience and investment philosophy. The quality of the team, investment processes, risk measures and operational efficiency are also important attributes that ensures good performance. While most of us may find it difficult to assess fund house on all these parameters, we can certainly get an idea of the fund house by visiting their websites, reading basic details in scheme documents or accessing on-line research articles /reports. We should try to shortlist fund houses that have a strong presence in the financial world and provide schemes that have a reasonably long and consistent track records.

Scheme Performance :
The performance of the scheme is benchmarked against comparative indices and most schemes provide performance comparison against these benchmarks. However, they may not be appropriate for us and we should look at performance against similar/peer-set schemes to get a better idea of performance. This exercise will enable us to differentiate the good performing schemes from the laggards in our universe of fund houses.

Within performance, a fund delivering the highest return in a particular period or recently may not necessarily be the best. One has to look for consistency in good performance over different periods of time. By consistency we mean that the returns are not over volatile over different periods while giving good returns steadily. We should also keep in mind that the past performance is no guarantee of future results.

Scheme Objective & other attributes:
At this final stage of selecting a mutual fund scheme, we are now evaluating between few schemes which we shortlisted in the previous step. Among the things we can check are…

Investment objective: which talks about the scheme’s goal, investing rationale and asset class composition. We should check that the scheme matches our own financial objectives and needs.

Other attributes: Entry and exit loads, management fees /expenses, fund manager, size of the AUM, portfolio concentration, turnover ratio, are some of the other things can one can give attention to. These may not play as important role as the other factors but some of these attributes may carry significance depending upon one’s needs /preferences. To know about the above information one may need to look into the scheme documents and other literature available.

Conclusion:
For success of any investment goal, there are many factors that play a crucial role. Most important is that of setting the right goals and having a portfolio with the right asset allocation. This is where most of investors are more likely to go wrong. As we have many times in past reiterated, asset allocation is the primary determinant, almost 94%, of long term performance of a portfolio as opposed to product selection and timing. Though we have talked about scheme selection in this article, investors having good financial advisors can rely on their expertise to recommend and suggest schemes and on which they can further seek clarifications as discussed here. As educated investors though, we should all know what important things should be known before investing under any scheme.

The tax-saving season is coming to an end. For the investors, there is a host of tax- saving products competing with one another to get your attention. However, choosing the right product is not easy in the race against time.

Perhaps, it is just the right time to draw your attention to one such tax-saving product vying for your attention. Known as the Equity Linked Savings Scheme (ELSS) from mutual funds, it is one product that deserves more attention than any other tax-saving product. As an investor, it would be interesting to know more about ELSS and understand how it scores above other tax-savings schemes on offer…

Tax Savings:
Making the most of the tax saving options available to you is very obvious. Section 80C of the Income Tax Act, is a major section where most of the tax savings can be done by an investor. Investments made under section 80C are deductible from the income of the person while calculating tax. Thus, a person can save up to Rs.30,900/- in tax by making full use of 80C, depending upon his/her tax slab. The good news is that there are a host of products that qualify for ‘tax-deductible’ savings Section 80C, which includes…

• Public Provident Fund (PPF)
• Equity Linked Saving Schemes (ELSS)
• National Saving Certificates (NSC)
• Fixed Deposits (5 year period)
• Provident Fund (PF)
• Kisan Vikas Patra (KVP)
• Life Insurance Premiums
• Pension Funds
• Housing Loan (Principal) Repayments
• Infrastructure Bonds

Thanks to the large number of products available under section 80C, you need to understand your options better before your commit your money to any particular option. With these multiple options, for an investor, it makes sense to make the most of this section by not only saving tax but also investing for the better returns. However, quite often this is not the case. The investment decision is often driven by “tax-saving” objective, ignorant of investing side of it.

About Equity Linked Savings Scheme:
An ELSS (Equity Linked Savings Scheme) is a mutual fund scheme investing in equity and equity-related securities. ELSS is similar to a diversified equity fund in terms of their portfolio except the fact that they they have a 3-Year lock-in- period and are eligible for tax-deduction under 80C up to Rs.100,000/- (FY 2010-11).

ELSS scores upon other traditional tax saving investments for the following factors:

• Minimum Lock-in Period: The lock-in Period is of 3 years only which is the least among all the investment products under 80C. After this period you are free to withdraw your entire investment or continue holding it as a long term investment.
• Attractive Returns Potential: There is a strong potential for higher returns as returns are not fixed but market dependent with investments in equity & equity related securities. Equities have been proven to give attractive returns in the long-term over any other asset class.
• Additional Tax Benefits: ELSS enjoys other tax advantages applicable to mutual funds. There is no tax on the dividends declared and also no taxation on long-term capital gains. This makes all the income and appreciation from ELSS tax-free for the investor.
• Choice of Product: There is a lot of choice in terms of selecting from an ELSS scheme being offered by many AMCs. There is choice also for selecting between scheme option of Growth / Dividend Payout or Dividend Reinvestment.
• Convenience: Mutual funds offer huge convenience / flexibility in investing. One can invest through lump-sum / SIP or make a Switch or STP from an existing mutual fund scheme. Further, since mutual funds are now also traded on stock exchange, you can directly buy ELSS online, sitting at the comfort of your home.

The following is the brief relative performance comparison of some of the major tax-saving products.

Particulars PPF NSC Bank Deposits ULIPs ELSS 1 Lock-in Period 15 years 6 years 5 years (to avail 80C benefit) 5 years 3 years 2 Minimum Investment Rs. 500 Rs. 100 Rs. 10,000 Depends on Premium Rs. 500 3 Maximum Investment limit Rs. 70,000 No Limit No Limit No Limit No Limit 4 Maximum Investment for 80C benefit Rs.70,000 Rs.1 Lac Rs.1 Lac Rs.1 Lac Rs.1 Lac 5 Rate of Return (%) 8 yearly compounding 8 compounded half yearly 7-9% Depending on Bank NA Market driven 6 Taxation on Income Tax Free Taxable Taxable Variable as per IT laws Dividend + Long Term Capital Gains are Tax Free

ELSS, thus, scores important points over many other tax-saving products. However, one should also understand that the returns are not guaranteed before investing.

Case for Equity Investing through Mutual Funds:
Most of products under 80C are on the debt side like NSC, Bank Deposits, PPF, etc. These products offer assured rates of return. However when you adjust these returns for taxation and inflation, returns would be negative. Thus with negative “real returns” on your investments, you are really not saving but dis-saving in actual terms. With higher inflation rates in recent times, the investment in these products must be made only after careful understanding that you may be actually eroding your wealth. As investors, we should always aim for positive real returns (higher than inflation) after tax. It is only then that we will truly invest for a better future.

One of the most important asset class to beat inflation in long term is equities. It is true that equity returns can not be guaranteed but are market dependent and hence riskier than the dept products. However, once the investment duration is prolonged and the right way of investing is adopted, you can reduce risk to a certain extent without compromising on returns potential. One way of smartly doing so is by investing in equity mutual funds rather than directly investing in equities. Mutual funds, is an ideal investment vehicle for any investor to invest into equities as it offers the important benefits of diversification and professional investment management at least costs. Further still, the Systematic Investment Plan or an SIP in a equity mutual funds reduces the risks and offers a convenient way to invest small amounts of money at regular intervals in any scheme, including ELSS. Thus, equity mutual fund schemes would help generate inflation-beating returns in long run while keeping risks under control.

The advantages of ELSS as an equity mutual fund scheme plus tax benefits of 80C plus its scoring points over other tax saving products, makes it a formidable product to invest and gain maximum out of 80C. The ultimate decision to invest should however be made as per one’s own risk appetite and after understanding all the risks & benefits offered by the investment products. After all, you are investing not just for tax savings but something more…

Honorable Prime Minister Mr. Narendra Modi formally launched the Digital India Project on 1st of July. The project, a pet scheme of the NDA government, aims to connect India by broadband Internet, promote e-governance and transform India into a connected knowledge economy. The possibilities and benefits of such a project, in time, will prove to be immense and trans formative in nature. With E-Commerce, it also has the seeds to change how we all deal with our financial activities. At this time, the need for acknowledging these under-currents of technology transformation in India cannot be overlooked. The question now arises, are we ready for Digital India? Are we going to be a part of it or refuse to change ourselves and stay stuck in the past? This article attempts to connects us, as investors, to a digital, on-line world on the go.

eCommerce in India:
The eCommerce sector has seen unprecedented growth in recent years. The increasing use of devices like smart-phones and tablets, easy access to internet, better internet speeds have driven rapid technology adoption and increase in consumer base across India. eCommerce is today seen spreading across a very wide range of products and services and set to grow further. It has changed the industry landscape and unsettled old players in industries like classifieds, training & education, financial services, communications, logistics, music, travel, transport, real estate broking, retail and so on. Apart from volumes, even value of transactions has increased many fold. For some it may be hard to believe that recently Tata Housing, a pioneer in online selling of flats, sold a villa worth Rs 5.50 Crores through its’ ecommerce portal. eCommerce sector in India has grown by 34% (CAGR) since 2009 to touch 16.4 billion USD in 2014. eTailing, which comprises of online retail and market-places, has become the fastest-growing segment in the larger market having grown at a CAGR of around 56% over 2009-2014. There are projections for a growth of over 700% in next 5 years!

Case for Online Investments:
In the use of digital technologies, financial services in India lags behind other categories. Technology discontinuities such as the mobile Internet, cloud storage, automation of knowledge work, digital identity verification and digital payments provide tremendous opportunity to reinvent financial services. We are already seeing the change taking shape in banking industry where innovative solutions are emerging that allow you to make payments and transfer amounts. Today we can access information, compare and do research in virtually any financial product. The scope of products which you apply for and/or transact online today is larger than ever. The list is dominated by shares and mutual funds at the top followed by fixed income securities, insurance, loans, credit cards, etc. Since long we are used to having equity shares in the demat mode with online trading facility. Now there is an increasing awareness and appreciation for the advantages of going for online transactions in other financial products, especially mutual funds. To start investing online through mutual funds, the investors need to have a “NJ E-Wealth A/c” or Trading Account and Demat Account. While trading account is needed to undertake transactions, the online demat account is needed to hold the securities in dematerialised form.

Advantages of having NJ E-Wealth A/c Service:
Avoiding physical transactions: Among the greatest advantages of having NJ E-Wealth A/c is that you can completely avoid any physical transactions in mutual funds. Through NJ E-Wealth A/c, you would be able to make virtually every type of transaction like purchases, redemptions, switch, SIP and STP. Doing multiple transactions and inter AMC switches would is also possible through NJ E-Wealth A/c. Thus you save on time and efforts in filling form and form submission. With NJ E-Wealth A/c, transactions can be done instantly through the online NJ E-Wealth A/c Account, mobile application or through Call & Trade service.
With online transactions you would …

• Enjoy freedom to transact from anywhere, any time
• Save time & effort on form filling
• Avoid physical travel and submission process
• Ensure timely transaction processing and update on email /SMS
• Avoid manual mistakes of form filling and increase accuracy of transactions

Consolidation of All Holdings:
With a demat account, you would be able to see all your actual holdings of securities at one single place. This would avoid any confusion and cases of queries in terms of what your holdings are. You may no longer bother to collect and store account statements. Further, in addition to mutual funds, your demat account would also hold other securities like equity shares, bonds, ETFs, etc. One would also be able to apply in NFOs and IPOs through the demat mode. Having a consolidated holdings across different financial products would be challenge had things been in physical mode.
Here are the advantages in brief…

• Avoiding hassles of remembering, tracking and consolidating investments
• Actual, real-time holdings in your demat account
• Single holdings statement across products like mutual funds, equities, bonds and ETFs

Synchronisation of Investor Information:
One of the many problems of physical transacting is having to remember and manage investor information across multiple AMCs. Quite often important investor details may differ leading to many problems. Updating any such information proves very troublesome for any investor. With NJ E-Wealth A/c, we are no longer worried about such non-financial information and records as they are maintained at the single level and are applicable for all your holdings.

• Standard investor information like bank details, contact information, nomination, redemption payout mode, etc.
• Single window update of all investor related information.

Conclusion:
We have adopted technology in many parts of our lives, be it socialising, communicating, learning, traveling or shopping. But we are yet truly embrace technology in an area which perhaps is most important comes closest your financial well-being – investments. In line with the digital India vision and the trend in our own lives, it is now high time that we go fully digital on our investments front. Opening a NJ E-Wealth A/c is an one time exercise but which can provide you with a lifetime of advantages with its’ promise of convenience, ease, efficiency, mobility, control and choice. Its’ is high time that we undertake this important task of opening NJ E-Wealth A/c by approaching.

For the first time ever, June 21st was celebrated as the International Day of Yoga across the world led by India. Yoga is perhaps the only discipline that focus on a person’s well-being holistically, including physical, mental and spiritual aspects. This brings us to another aspect of our lives – our financial well-being for which we are constantly strive for and are more often than not, in stress. We have often talked of how doing a financial planning is a must for financial well-being. Just to refresh, financial planning, in brief, is a process of identify your financial objectives , then preparing and following a financial plan to achieve those objectives. Drawing a parallel between these two distinct yet homogeneous ideas promoting holistic well-being cannot be missed. In this article, we take a look at similar characteristics between the two…

1] The idea of Unity: Our PM introduced yoga as an unity of body and mind, thought and action and as the journey discovery of self more than being just an exercise in the UN General Assembly speech. Financial planning too is a journey of discovering your own financial self, understanding your risk appetite, your net worth, your income, expenses and your financial goals in life. It is also about creating a unity and synergy between your income with your expenses, your wealth with your financial goals and your present with your desired financial future.

2] Being Universal: Yoga is truly universal in nature and it holds the same promise for every individual irrespective of age, religion, occupation, ethnicity and even health. Financial planning too is very universal in nature and can be effectively carried on for every individual irrespective of gender, wealth, occupation or the level of financial awareness. Depending on one’s situation, the financial plan can be customized to focus more on specific areas /aspects as one may feel need for. The areas we are talking here cover all wealth and financial aspects of an individual like cash-flow management, investments, insurance, taxation, and estate planning.

3] Need for Patience & Discipline: To realise the true benefits of yoga and of financial planning, one has to be patient and exercise discipline in pursuing them for a long period of time. Whether it be achieving a healthy mind and body or your financial goals in life, the importance of discipline and patience for continuous and proper practice can never be less emphasised. In financial planning you have to take efforts to ensure that you are saving, spending and executing the plans continuously as planned while regularly reviewing and making amendments to your plan.

4] There is No Contest: Yoga does not specify any targets for you and you do not have to face any competition with anyone else. Financial planning is also just for you, customised and as per your own assessment of your needs. When you plan your finances, you are looking are your own risks, financial goals and cash-flows. You do not need to think about others and what their plans are. The financial plan is for you and only you will be able to judge the progress and enjoy the benefits of achieving those goals. Your achievements are also relative in nature depending on your own strengths and weaknesses.

5] Focus on Form & Process: Yoga stresses a lot on proper form, posture, breathing and the process of carrying out any aasanas. Only when we carry out the aasanas in its’ proper process can we unlock the true benefits from t h e m . F i n a n c i a l planning too has focus on following the process and executing the action plan, properly and on time, continuously. A proper financial plan cannot be made unless the process is followed sincerely and this includes defining the scope of the planning, understanding the expectations, disclosing all relevant facts and assessing cash flows and financial goals properly to being with. We cannot expect our financial objectives to be met unless we adopt the the process and make regular reviews. A financial plan is not a product but a process to organise our finances just like yoga is about organising our own selves.

6] Going Beyond Body: Yoga is beyond just body and exercise. Financial planning too has a bigger picture and it deals with your financial behaviour, habits, sensitivity and awareness. Adopting and following financial planning in our lives can potentially also alter our way of looking at financial decisions and situations.

An awareness of our financial strengths, weaknesses and our goals in lives can dramatically change our approach to savings and spending. With increased financial awareness, we can see a change in our comfort level and approach to different asset classes and financial products. Over a period of time, we will also begin to see ourselves as more disciplined, steady and logical when in comes to money.

7] It’s A Journey: Both yoga and financial planning are not to be seen as one time tasks or surgeries where advantages can be visible overnight. They are to be seen as journey towards self discovery, unity and ultimately well-being. Financial planning is a discipline or organise and plan your finances so that you are are aware and in control of your future. Thus, as a continuous process, it will slowly but steadily lead to much better and improved financial well-being over time. And there is no end to this.

Conclusion: The idea of finding similarities between yoga and financial planning is to evoke the sense of importance and respect for the latter, which we often neglect in our lives. Perhaps by highlighting the similarities we would be motivated to understand, appreciate and finally adopt a financial planning in our lives. It can potentially be very rewarding just like the rewards of yoga which we are talking about today. Nothing can however be more beneficial than adopting both yoga and financial planning in our lives. That way, even the missed part of financial well-being by yoga would be aptly taken care of. By adopting both in our lives, we would embark on a more fulfilling and complete journey of self discovery and well-being.

Today you have many options for investment. In fact the options are so many that one often feels confused as to which is the ideal one! Most of us are also unsure of what important parameters to consider before choosing an option. We often consider a few important parameters but ignore a majority of the same. This article shares with you the important parameters that you may consider evaluating before making any investment decision. Please note that we are not considering important personal parameters like risk appetite, asset allocation, etc. here but only looking at parameters from investment product point of view.

Time Horizon:
Time is of essence and among the most important determinants for any investment decision. You may easily classify your investment time horizon into different categories like for eg. (i) very short term; less than 3 months (ii) short term; 3 to 12 months (iii) medium term; 1 to 3 years (iv) long term; 3 to 10 years (v) very long term; beyond 10 years. As your time horizons increase, the risk nature of investments can increase from money market instruments to short term debt to long term debt and then increasing portions of equity. Ideally, for a long duration and a growing economy like India, equity asset classes offer much greater scope of wealth creation.

Real Returns:
While evaluating returns expected from any investment, we often only look at the returns mentioned or expected. However, we fail to take into consideration factors like inflation and taxation upon these returns. As smart investors, we should always look at Post Tax – Real Returns from any investment. To arrive at this is very simple. Firstly, take the ‘gross’ returns from an investment – say 8% for 1 year on Bank FD and deduct taxation from this. Eg. If your applicable tax slab is 30% and the interest returs are taxable then the post-tax returns are 8% less 30% or 5.60%. After post-tax returns, the next is adjustment for inflation or price rise by deducting inflation from post-tax returns. Thus, if the inflation is at say, 8% today, then the post-tax, real returns will be 5.60% less 8% or negative 2.4%. Thus, the our investment, as given in example, in reality is going to give you a negative real returns on post-tax basis. This is the recommended method to evaluate any returns for any investment.

Investment Risks:
Investment risks are of many kinds and would arise from (i) markets (ii) nature of asset class (iii) product provider / manufacturer (iv) financial and regulatory environment (v) political climate, etc. Given the nature of asset class, like physical, equity & debt, the risks would vary in nature. Equity risks are mainly market, company & sector driven. Debt risks are generally in nature of credit risk, liquidity, reinvestment, etc.

Tax Considerations:
There are four instances where tax incidence has to be evaluated. First – at time of making investment if the investment is eligible for rebate or deduction. Typically such investments would fall under section 80C, 80D, etc. Second incidence would be the taxability of the income generated from your investments. Income can be broadly in form of interest or dividend income. Third incidence would be that when any investment is redeemed or sold. In such a case, the capital gains , long term or short term, would need to be calculated, depending upon the investment horizon. Fourth tax incidence is that of Wealth Tax, which is more relevant of high networth individuals. Investments can offer tax benefits to you on any combination of these tax incidences. A smart investment decision would be one which will give the best tax benefits and minimum tax liability from your investment.

Liquidity:
Investments can be futile if one is not able to liquidate it at times of need or emergency. Surely, life is uncertain and we would not like our investments to be blocked and unavailable when we need it. Liquidity would mean that you can get your investments back easily, within short period of time and without incuring incurring too much of cost or sacrifice of value while redeeming. An investment option offering high liquidity is preferred since one may not only need it at times of emergency but also to make best use of any investment opportunities that may crop up at any point of time. However, having said this, as investors we should be disciplined enough to not liquidate investments often for non-critical or general expenses every now & then just because we can do so.

Costs: 
Different investment products have different types of costs attached. Generally, any investment would have any combination of following three types of costs (i) at time of investing new or additional money (ii) during period when investment is active as percentage of investment value or fixed fees (iii) at time of exiting or withdrawing money. Typically we can mention these costs as entry load / expense / exit load. The costs may be calculated as percentage of amount or a fixed sum of agreed fees. Further, costs may be levied for distribution, transaction services or advisory services. There would be also also be costs while making service or operational requests, which are beyond the normal investment costs. Over time, the costs in many products have fallen but still costs are a major factor to consider when one is investing large amounts in products like PMS scheme, liquid funds, insurance products, etc.

Suitability:
There are customised products available in market directed for specific purposes like pension, retirement, wealth creation, safety of capital, child education, etc. Being clear with your investment objective can also be an imporant factor while considering different options. It is however important to be careful since just naming products after some life goals need not necessarily qualify as good investment for that purpose. You may need to weigh small unique features that such products offer before comitting your money.

Convenience & features.
With improving lifestyle and penetration of technology in our daily lives, we would prefer investment products that can be viewed & managed online. While most financial institutions are now increasingly offering such services, off lately, even government schemes & plans have begun such services. Further, one may also like to evaluate other facilities like nomination, third party transferability, loan facility, acceptability as security for loan by financial institutions. While these options may not be of very critical, it can however be a differentiating factor for persons who intent to use these options.

Often the investment decisions made are not based on careful thinking or evaluation on all these parameters. Decisions are majorly influenced by opinions of close friends, influencial persons in family, recommendations by agents, brokers and even by smarter marketing by companies. Evaluating investment options independent of these influencing factors on the parameters given above can most definitely lead to long term financial well-being. If you are not in position of to evaluate these factors yourself, you can surely ask your financial advisor these questions when required. After all, being wealthy in life is not just about making the best investment decisions but also about avoiding bad decisions.

The last day for action to save taxes is just round the corner. It is high time that you now take compute the tax liabilities and take necessary steps to reduce your tax liability. However, in this last few days, it is also very easy for you to get carried away and make some mistakes. In this piece, we will give some tips on what you should actually do along with a brief overview of the tax saving avenues…

Last minute tips:

• Calculate your taxable income first and the investments /deductions already made under different IT sections, especially section 80C.
• Don’t rush into long term insurance products in a hurry. The primarily reason for buying insurance should be protection and not tax savings.
• Do not invest in NPS purely to save taxes. NPS is a long term commitment and the new taxation benefits announced will only be applicable in the new financial year.
• Invest only where you understand the product and feel a genuine need for the same.

Explore the following options to save taxes …

1. Mutual Fund ELSS schemes: The good part is that your investment can be made easily in a product that has the shortest lock-in period of 3 years and very favourable tax benefits. The safe part is that there is no recurring investments or any sort of long term or future commitment. But one should understand that the investment will be made in equity asset class which may give volatile returns with a fair possibility of both good and not-so-good returns. It is an often recommended product by financial advisors and you should it a good look .
2. Term insurance plans: Term insurance offers high level of coverage for the lowest premiums. They are safer as the long term commitment is low and you get the maximum coverage for every rupee that you pay. However, choosing a term plan should be done with care and help of experts / insurance advisors. The process can be completed with payment of premium unless there are some medical tests required.
3. Health Insurance cover: This another popular avenue for saving taxes. Healthy young adults without any adverse medical history may still find this option available but one would need to hurry to buy the policy on time as it may take a bit of time.

Common Tax savings sections …

Section	Maximum limit for deduction /exemption
80C, 80CCC & 80CCD	On investments upto Rs.1,50,000 in multiple instruments
80CCD (1B)	On investments of Rs.50,000 in NPS
80CCG	On investments of upto Rs.50,000 in RGESS (only 50% eligible) for first time investors (till 3 consecutive years)
80D	On health insurance premiums upto to Rs.25,000 self /spouse/ children (Rs.30,000 if either you/spouse is senior citizen) + Rs.25,000 for parents (Rs.30,000 if either parent is senior citizen)
80DD	On actual expenses upto Rs.75,000 (upto Rs.1,25,000 for severe conditions) on maintenance & medical treatment of disabled dependents
80U	If suffering from disabilities or diseases Rs.75,000 (Rs.1,25,000 if severe)
80E	Interest payable on Education loan (no limit) for self /dependent spouse/children
24	Upto Rs.2,00,000 for home loan interest + 30,000 for home improvement loans
80G / 80GGA / 80GGC	Upto 100% or 50% for donations to charitable funds, institutions, etc or for scientific research or to political parties. Maximum claim normally limited to 10% of gross annual income.
80GG	Lower of Rs.24,000 or 25% income or Rent paid (above 10% of income) for paying rent without HRA
80TTA	Upto Rs.10,000 for savings bank interest received

Options covered under 80C / 80CCC / 80CCD

Scheme Name	1 Year
Investments – Debt	Employee Provident Fund (EPF), Public Provident Fund (PPF), Sukanya Samriddhi Account, National Savings Certification (NSC), Senior Citizen’s Savings Scheme (SCSS) Tax Savings Fixed Deposits (5 yrs)
Investments – Non-Debt	Life Insurance premium, Pension Plans, New Pension Scheme (NPS), MF Equity Linked Savings Schemes (ELSS), Central Govt. Employees Pension Scheme
Expenditures	Principal payment on home loan, Stamp duty /registration cost of house, Tuition fees for 2 children

Asset Class is a often used word in finance, especially investment & portfolio management. We also used the term many times in our articles. In this article a take a academic look at the various asset classes.

Why know about different asset classes?
Knowledge and understanding about asset classes is a very basic for any person thinks of self as an investor. Though it is not required that one be expert with every asset class, the bare minimum understanding of the nature of main asset classes, the risk profile, returns potential and the way of investing into such asset classes is a humble expectation. In brief, we can put the following reasons for knowing about asset classes:

 

• Increased choices for informed decision making
• Better investment management through asset allocation & diversification
• Identifying emerging opportunities & risks for investing
• Being rational, unbiased and confident in investment decisions

 

How do asset classes differ?
Each asset class is different and there are many points of difference against other asset classes. These differences ultimately impact the investment objectives and performance. The asset classes may differ upon the following things…

• Nature and characteristics
• Correlation with other asset classes
• Risk and Returns potential / trade-off
• Ideal investment horizon
• Behaviour w.r.t. markets, interest rates, economic environment, etc.
• Rules, regulations and taxation

Definition and Types of asset classes:
An ‘Asset Class‘ can be defined as a group of securities or investments that display similar characteristics or behave in similar fashion in markets or economic variables and are subject to similar rules & regulations.

There are broadly three basic asset classes considered by most investment experts: (i) Equity securities (ii) Fixed Income or Debt securities and (iii) Cash equivalents. In addition to this, (iv) Real Estate and (v) Commodities are also considered by many as important asset classes given their characteristics and penetration among investors.

The asset classes can be further broken down through ways, but such segregations are generally mixed together whenever we talk of asset classes at a broader level. For example, Equity can be further broken down as large-cap, mid-cap & small-cap but for the purpose of asset class discussions, we categories them all into equities, even though their risk-return behaviour may slightly differ from each other. Breakups can be effectively used for determining diversification within an asset class. But irrespective of any asset class line-up, each one is expected to reflect different risk and return investment characteristics, and will perform differently in any given market environment.

Equity:
Our readers must be very familiar with Equity asset class by now. Most would also know that over long term equity as an asset class has outperformed other asset classes in India as well as in more developed economies. Equity basically enables efficient movement of funds from people having excess to businesses that need it to fund growth and business operations. The businesses in turn provide employment, goods & services to public and tax revenues to government and try to make the most productive use of the capital. Equity is a risky asset class and investments should be made for long term. The returns from such investments are in form of capital gains by price appreciation and/or dividend payments by companies.

In India, the equities are largely held directly through stock exchange or indirectly through mutual fund equity schemes. Exposure to equity can also be made through Exchange Traded Funds (ETFs) and Portfolio Management Schemes (PMS) and indirectly through pension schemes / plans that invest in equities. Insurance products, especially Unit Linked Plans (ULIPs) is an another route well known route. Equity can also be held in form of stakes or Private Equity in businesses. This option, however, is limited super HNI and corporate investors.

Debt:
Debt is an another asset class which your would be very familiar with. Some of the popular avenues of debt investments are through Fixed Deposits of banks & corporates and bonds issued by governments, RBI and the likes. Small Saving schemes and pension plans by government is an another major avenue of investing. Mutual funds schemes are lately becoming popular with retail investors too. The mutual funds offer a wide variety of products to suit every need and risk profile of the customer. It is a relatively less risky asset class and returns are generally in form of interest payments and/or capital gains due to impact of interest rates changes over time.

Commodities:
Commodities may be treated as a distinct asset class since their nature and behaviour differs from the other asset classes. Indians have been traditional investors in ‘gold’ as a commodity. Other commodities are now finding a favour with investors, albeit slowly. Precious metals like Gold & silver remain the biggest avenue for investment and awareness & exposure to other commodities is very low. The impressive performance of these metals over past few years have made them as asset class hard to be ignored by investors.

The commodity prices tend to follow the cyclical pattern of underlying commodities which is why it is important to understand the demand-supply factors. Needless to say, this is not an asset class for the less informed or the faint hearted, especially for agro-commodities & base metals. Investment is generally for short to medium term and the idea is to profit from price movements or hedge against actual exposure. As an asset class, commodities have been observed to have low correlation with the other asset classes and hence offer excellent potential for portfolio diversification. Investments into Gold specially has also become more convenient & practical for investors with the launch of Gold ETFs and mutual fund schemes.

Real Estate:
Real estate is the original idea of creating assets before the other asset classes become popular among investors. Real estate, especially residential / commercial units, unlike other asset classes, except gold, gives the owners a sense of emotional satisfaction and confidence. Holding physical property has also its own share of social acknowledgment of your financial standing. Land is also treated more than an asset in the largely agrarian economy of India.

From an investor’s perspective, the investment in physical real estate has its own share of challenges w.r.t. clear titles, transparency, transaction costs, etc. Emergence of new avenues for investments has, to some extend, made it feasible to get exposure to this asset class with less risks. The returns in this asset class is in form of rental/ lease payments and price appreciation. Real estate are the least liquid of all the asset classes and investment horizon is generally long-term to very long term in nature.

Cash:
As an asset class, cash and cash equivalents is unlike any other asset class. The purpose of holding cash is either for transaction / payment reason or as a precaution for any eventuality or as a buffer for taking advantage of opportunities in other asset classes/ products. Cash is the least productive of all asset classes and delivers little or no returns and over time looses out its real value as well. Cash equivalent holdings are dictated by convenience, comfort and cash habits of people. As an investor, one should try to minimise cash equivalent holdings to an optimum level that strictly meets your needs. Mutual fund liquid funds is considered as the ideal avenue for putting aside money for short durations, giving advantages of superior post-tax returns, high liquidity, very low costs & convenience.

Other asset classes:
Apart of the above major asset classes discussed, there are also some more asset classes considered by few investment experts. You may come across asset classes like currency, derivatives and collectibles. Currency, as an asset class is distinct in nature and it derives its existence because of the exchange rate fluctuations between countries. Currency is something of great interest to governments, banks, multinational corporates having business incomes arising in different countries, and even to individuals where source of income and consumption are in separate countries. Derivatives is an asset class that ‘derives’ its value from the actual underlying asset class. It is more of an hedging and trading tool and fraught with very high risks, something which is suited only for the experts. Collectibles is an emerging asset class where investments are made in art, antiques & other collectibles. This asset class is now finding more favour with HNI investors who are looking for some diversification & spice in their portfolio.

Using Asset Classes:
Understanding of the asset classes leads us to the question – Whats’ next?. The usage of different asset classes are basically two fold. First, the understanding is useful for purpose of diversification to optimise risk-return trade-off. This is because different asset classes perform differently in different markets and also differently from each other. Diversification only works when you combine assets that have opposite or low correlation with each other. The second idea is to decide and follow the ‘asset allocation’ strategy. The asset allocation strategy has been cited by investment managers & experts as the biggest deciding factor for long term wealth creation. Financial advisors have propagated asset allocation strategies of tactical, dynamic and strategic in nature to their investors keeping in mind their risk profile.

In brief:
As markets grow and become mature, there would increasingly be arrivals of new asset classes or product options in existing asset classes. As of today, there already exists a wide variety of asset classes and product options within them, something which wasn’t available a decade back. The increasing choices of asset classes and financial products brings complexity, confusion & challenges to any investor. An informed and wise investor would always try and understand & appreciating the nature and nuances of different asset classes. The awareness and comfort level can then be used for designing portfolios based on age old principles of asset allocation and diversification.