Money Habits That Can Help You Save A Lot Of Money

Friday, May 18 2018
Source/Contribution by : NJ Publications

Today we’ll not talk about financial products or investments or goals, rather we’ll concentrate on simple routine money habits which you can apply in your daily life and become financially prudent, i.e. spend less and earn more.

So, here are ten money habits that you can adopt in your everyday life:

1. Don’t carry excessive cash in your wallet: Make it a rule, keep minimal cash with you. Cash generally isn’t faithful to the owner. You must have experienced that once you pay for a purchase with a 2,000 rupee note, the change will vanish in no time, plus there are chances of cash being stolen or lost. So keep limited cash, you can always use a card or an e-wallet in case you fall short of money.

2. Be Vigilant with money: You must be careful with money in routine activities like you must always be aware of how much cash you have in your wallet as well as in your cupboard, otherwise you will never come to know if you have dropped or someone has slipped a few notes away. Write down if someone has borrowed money from you or vice versa if you owe someone, if you tend to forget such transactions. Regularly check your bank statements, check the sms’ you get from your banks, so that any wrongful debits can be detected.

3. No to impulsive shopping: Put a strict no no to hasty shopping decisions, because in such cases you end up buying stuff you don’t need or already have, and only waste your money. You should always make a buying list, after a careful consideration of your requirements, and strictly adhere to that list.

4. Don’t go overboard in frugality: Don’t go all the way to the wholesale market for buying 1 kg of dal, and waste your time and fuel, because it’s 10 rupees cheaper. Although we must cut costs to save money, yet you must factor in the time and energy that goes into saving those bucks, the efforts gone must be worth the saving.

5. Pay your bills in time: Many of us are chronically late in paying our bills. We often end up paying late payment fee and penalties on our mobile bills, electricity, water bills, etc., not for lack of money, but for our lethargy. These penalties if avoided could have saved you thousands of rupees over the years. Make it a rule to always make your payments in time, you can use mobile apps to remind you of the bill dates or you can use automatic bill payments system.

6. Manage your credit cards: If you are using a credit card, you must be extremely careful in always making bill payments in full and in time, because:

> Late payment of bills attract heavy penalties

> If you just make the minimum payment, then though you don’t have to pay the penalty, but you have to pay interest, and the interest rate in most credit cards is above 30% p.a.

> Thirdly, defaulting in credit card payments affects your CIBIL score.

7. Be a smart shopper: You can save a lot while spending. The first thing to do is compare the prices on different websites, or stores, at times there is a significant difference in the price of the same product at different places. Look for coupons, you can get discounts on various products and services, also remember to use your coupons before the expiry date. If there isn’t an urgent need, wait for the sale, why spend more when you can get the same thing at a cheaper price, next month.

8. Budget: If you wish to achieve the ultimate objective: spending less than you earn, then you must create a budget and follow it religiously. Keep a track of your expenses, and try to keep them within the limit you have set for yourself. It is ideal to note down your expenses, it’ll be easier to track them.

9. Crosscheck the bills: Make it a habit to always crosscheck your bills, like food bills at restaurants to ensure you are not paying for the dish ordered by people sitting at the next table. Similarly check your grocery bills, mobile, electricity bills etc., since there can be discrepancies.

10. Eat at home: The frequency of dining out has increased for most of us over the years. Eating out especially at fancy restaurants is an expensive affair, it occupies a significant piece of our total expenses, particularly in metro cities. We pay thousands of rupees for one dinner, if you calculate your restaurant expenses for an entire year, it’ll be a significant sum. If you increase the frequency of eating home cooked food, it’ll be good for your health as well as for your pocket.

Mutual Funds – Myths

Thursday, April 19 2018
Source/Contribution by : NJ Publications

Mutual funds have witnessed a growth in popularity over the past few years. The trend has seen retail investors increasingly participating in mutual funds. However, there is also a high level of misinformation and myths surrounding mutual fund investing in the minds of the common investor. The low awareness levels breeds many misconceptions that refrain both existing and prospective investors from making the most that mutual funds has to offer.

In this article, we debunk 10 of the common mutual fund myths often heard on the streets….

Myth 1: “Mutual Funds invests only in equities.”
Fact: Mutual Funds is a like a vehicle carrying which can carry any investment product. The underlying investments of a mutual fund scheme can be in any asset class, be it equities, pure debt products, money market instruments or a mix of these. The fact is mutual funds offers schemes in all of these asset classes. This can be known from the Average Assets Under Management (AAUM) which in Equity oriented schemes is Rs.2.35 Lac Crores and in Debt oriented schemes is Rs.4.44 Lac Crores (Dec. end, 2010).

An investor can easily come to know where the investments would be made from scheme objective and stated asset allocation. Mutual Funds have different schemes like Equity or Growth Fund which invest predominantly in stocks of equity markets, Debt funds which invest into debt products like government bonds, corporate debentures and treasury bills. Balanced Funds mix equity and debt both, Money market or Liquid Funds invest in short term debt instruments.

Thus, mutual funds is not just about equities but it also offers a lot more choice to suit the needs of any investor.

Myth 2: “I invest in Direct Equity. So there is no need to invest in Mutual Funds.”
Fact: As explained, mutual fund does not only invest only in equity and investor may look at mutual funds for all asset classes, including equities. Investing directly in equities requires proper research, time and adequate capital. Often investors end up investing in few companies and a small number of equities of a company which are not backed by thorough research but on ‘tips’. Mutual Fund helps investor to invest in number of equities with the same amount of capital. Thus there is a strong benefit of diversification as the investments do not get concentrated in very few of the stocks or in a single stock which is very risky. Further still, there is the benefit of experience and professional expertise of the Fund Manager and the research team which makes the investment decisions on your behalf. This is again a major benefit since most of us do not have the time, expertise and infrastructure to actively manage our direct equity investments.

It is thus, wiser to invest in mutual funds and gain from the diversification and professional expertise of the fund house.

Myth 3: “Mutual Funds are very risky as mentioned in their advertisement – “Mutual Funds are subject to market risks.”?
Fact:
 The warning is a statutory requirement to make investors aware that the investments made by mutual funds are in products, the value of which is driven by markets and hence cannot be guaranteed. In other words, it means that the funds cannot promise guaranteed returns to the investor.

Investors should understand that the risk depends a lot on which scheme are you investing in and for what duration. One can reduce risk by choosing the right asset class and investing for the right duration. The risk for a debt scheme will be far lesser compared to a sector specific or small-cap focused equity scheme. Investing in equities through SIP or Systematic Investment Plan, where you contributed at regular intervals, also helps reducing risk a lot. Further, the diversification into multiple stocks /products and asset classes in a mutual fund scheme also helps reduce the risk as compared to investing directly. Rather than fearing risk, one should understand the same and invest wisely according to one’s own risk appetite and investment objective.

Myth 4: “Mutual fund investments do not give handsome returns.”
Fact:
 This is not a correct statement to make as it generalises all mutual fund schemes for performance. When comparing performance of products, the underlying asset class should be similar in nature and comparison should be made with relevant benchmarks. Historically, in general, mutual fund schemes have proven to be a very good performing investment vehicle for investors. There have been visible benefits of professional expertise and diversification of portfolio on the returns of mutual fund schemes. Mutual fund schemes have also largely outperformed general market indices in past. This can be seen from the average returns of diversified equity schemes, as a group, which is at 23.58% in 10 years as compared to the Sensex which has given 17.77% (as on 11/03/2011). (Source : Internal, calculated taking 36 schemes in to consideration)

Myth 5: “It is always better to invest in the mutual fund with the low NAV than high NAV.”
Fact:
 There is no difference in returns when investing in a higher or a lower NAV of a mutual fund scheme. The NAV is quite different from a stock price. An investment of Rs.10,000 in two mutual fund schemes of NAV say 15 & 45 will yield the same returns to you, assuming similar performance of the schemes. The NAV is a mathematically calculated price of the scheme based on the price of underlying securities. An NFO at Rs.10/- or an existing NAV of Rs.15 or 45, will invest in the same stocks at the prevailing market price. Thus, a lower NAV or higher NAV doesn’t matter while investing between two mutual fund schemes. This perception is can also be seen when an investor invests in a NFO thinking that the NFO is available at unit price of say Rs.10/-. Investors should look at other important factors while investing in schemes rather than looking at NAV.

Myth 6: “It is better to invest in a mutual fund that gives good dividends.”
Fact:
 While investing in a mutual fund, investors can choose between the growth and the dividend options. Most mutual fund schemes offer the choice of Growth / Dividend Reinvestment and Dividend Payout option to the investors. It is not mandatory for mutual funds to pay dividends regularly if they are offering such options.

Between a growth option and a dividend reinvestment option of a mutual fund equity scheme, there is the no difference in the returns. While in growth option, the NAV increases, in a dividend reinvestment option, the units increases proportionately. However, an investor can choose an option of dividend payout if there is a need of liquidity. The decision as to which option to opt should be on the basis of returns performance. An investor should consider other important factors of a scheme and his own requirements while investing in an scheme or opting for an option.

Myth 7: “My funds get locked if I invest in mutual funds.”
Fact:
 There is no lock-in period in mutual fund schemes per say and it depends on the actual scheme being purchased. For a person investing in an open-ended schemes, there is complete freedom to enter and exit the scheme at any time. There is a lock-in period of 3 years in ELSS (Equity Linked Savings Scheme) since it offers tax savings under section 80C. In a closed ended fund, the option to resale to the mutual fund AMC is not available, though one can sale in on stock exchange, if it is listed there.

Myth 8: One cannot invest in mutual funds online like in stocks.”
Fact:
 Mutual funds are now also available on stock exchange trading platform and one can make online transacts in mutual funds. The mutual funds will be held in your demat account and you can transact with your Trading Account as provided by your broker. This is a recent development and now brings a lot of flexibility and convenience to investors as they can transact without making any physical application. Mutual funds, however, also continue to be available through the physical route and most investors are yet to switch to the online mode. With growing awareness about the benefits of this online route, more & more investors will find it easier to manage their investments in the online mode than through the physical route.

Myth 9: “SIP is a scheme and every AMC is having an SIP scheme.”
Fact:
 SIP is not a scheme floated by mutual funds. It is a way of investing in mutual funds. Through SIP, an investor can invest a specific amount and at regular period of interval in mutual fund schemes. As SIP is a way of investing in mutual funds, it can be done with any scheme of mutual funds.

SIPs are popular because they help you invest a small amount, often as low as Rs.500, regularly in schemes and accumulate considerable wealth in long term. SIPs also help in automatically timing the markets. This disciplined approach has historically seen investments perform very well for the investors.

Myth 10: “SIP should be started only when market falls.”
Fact: 
SIP can be best started at any time. Through SIP investor can take advantage of market volatility as he will be investing a specific amount at regular time interval. By doing this, his money gets invested in the mutual fund scheme when the NAV of the schemes is high and at the same time when NAV of the scheme is low. By doing this the investment will be done at the average market price over a longer period of time. If the investor is investing through SIP, it really will have no effect whether the SIP is started when the market is at peak or the market has seen a fall.

Evaluating Returns Through IRR And XIRR

Friday, June 1 2018
Source/Contribution by : NJ Publications

Returns Evaluation activity is done by investors quite often. We want to be aware of the clear position of our investments, what is our portfolio return, which investments are faring better than others, etc. There are various measures of return like Absolute Return, CAGR, Annualized Return, IRR, XIRR, etc. used to compute the performance of investment products. In this passage we will concentrate on the applicability of IRR and XIRR methods.

Performance stats of Mutual Fund schemes are generally expressed in terms of CAGR, i.e. compounded annual growth rate or Absolute Return if the period of investment is less than a year. Absolute Return is simply the difference between the beginning and the ending value of your investment, expressed in percentage terms. For Eg. You invested in a Mutual Fund Scheme on 1 Jan 2017, when the NAV was Rs 10, on 1st July 2017 it is Rs 12, so the absolute return is 20%. Here, the holding period is not taken into consideration. CAGR will give you the compounded annualized return number on your investment, so continuing the above example, if on 1st July 2019, the NAV grows to 20, then the CAGR is 41.42% from 01 Jan 2017.

However, these formulas have their limitations, they can be used in measuring point to point returns only. If there is a stream of inflows or outflows, like dividends from shares, or SIP investments, etc., then IRR and XIRR formulas should be used to get annualized return.

What is IRR?

IRR or Internal Rate of Return is a method for calculating returns from an investment, where the number of inflows or outflows are multiple. For Example, if you want to calculate the returns from your SIP investment of Rs 5,000 a month which you did for 3 years, it will be cumbersome to calculate the CAGR for each SIP installment, the first installment for 36 months, then 35 months, and so on until 1 month. IRR is a simple formula in excel which you can use to find out the cumulative return on your investment. Or, if you want to compare your SIP investment with any other periodic investment of yours like if you have also been investing in a Recurring Deposit over the same period, you can use the IRR formula to compare the returns from your investments. Your advisor can help you in applying the formula and analyze various returns. If you are an investor with NJ, you don’t have to worry about using IRR either for your SIP investment, you can get the IRR number anytime on your investment from your Client Desk.

However, the IRR method can be used only when the inflows or outflows are regular, for irregular cashflows, there is an extension to the IRR formula, called the Extended Internal Rate of Return or XIRR. XIRR can be used in both scenarios, i.e. when the cash flows are regular or whether they are irregular. Now for instance, over these three years you have also invested in gold, lets say you bought Rs 20,000 worth of gold twice and Rs 30,000 worth of gold thrice, and all these investments were done at different time intervals. If you want to evaluate the overall return from your gold investment, then you can use the XIRR formula in excel to arrive at the same. You can also compare the performance of your SIP investment with the gold investment over the same time period, with the XIRR formula.

XIRR for analyzing Portfolio Returns. Investors generally invest in a number of investment products belonging to different asset classes over different time periods. If an investor has a portfolio of Mutual Funds, Bonds, Real Estate, Gold and PPF, and this investor wants to have a holistic picture of the Portfolio performance, so he must analyze his total Portfolio Return. The investor has to enter the purchase prices, the dates of purchase and the present value of all these investments in excel, with the help of the XIRR formula, the investor will have his Portfolio returns number. You can also compare the different investments in the Portfolio with the XIRR formula.

There are various return measures used to depict the performance of different investment products by the investment product providers. But for analyzing and comparing returns on a personal level, the IRR and XIRR formulas come in handy. You can seek help from your financial advisor for using these formulas and evaluating your investments individually, make comparisons or for getting a comprehensive view of your Portfolio.

The Three Typical Excuses For Not Investing

Thursday, June 7 2018
Source/Contribution by : NJ Publications

There are so many people out there who are yet to inaugurate their investing process. Either we just don’t want to invest or we keep on delaying investing, some of us feel investing is exclusive to the rich only, some are terrified of losing, while for some investing is simply not their cup of tea. This article intends to highlight the primary factors behind this reluctance and why we should get over them.

We have come up with three primary excuses which people use to support the unwilling outlook, which are:

1. I don’t have any money to invest: “Mere pas paise nhi hai abhi invest karne ko”, “Aage ghar me shaadi a rhi hai”, “Abhi itna kharcha ho gya hai”, “Next year bonus milega, tab start karenge”, are among the usual explanations we give to ourselves for not laying the foundation stone of investing. We keep on procrastinating investing for years on back of the same justification “Lack of money”. You will not invest until the time you count investing among your other necessities. Investing isn’t about the spare money rather it’s about sparing money for our future. Our 30 earning years must provide for the 30 earning plus the 30 non earning (Retirement) years. To make it possible, an individual must start investing from the beginning of the earning years, the more we postpone, we are actually shrinking the resources of our 30 golden (Retirement) years. You don’t need lakhs or even thousands of rupees to start, you can begin investing with a Rs 500 SIP in a Mutual Fund also. What is important here is 1. Realization and 2. Intention. The investors must realize that investing is a fundamental need and he must be earnest in his approach to investing.

2. Investing will deteriorate my current quality of life: Another factor which keeps people from investing is, they feel investing will take away a significant chunk of their income, which they otherwise spend on gratifying their lifestyle needs. People, especially those who are in the early stages of their career, live a paycheque to paycheque life, they spend most of their incomes on clothes, gadgets, accessories, shoes, restaurants, etc. About investing, they feel if they carve out money for investing, they will have to compromise on their lifestyle. As described above, investing is a necessity, and about lifestyle, investing in fact will only accelerate your quality of life. As they say, “Paise se paisa banta hai”, the money you invest today will create more money for you in the future, which means an upgraded lifestyle, and it also means there will be no disruption in your lifestyle, since you have created your financial backup. If you cut one pizza and one t-shirt every month, you’ll probably have your one month’s SIP ready. Having one less pizza and t-shirt won’t hamper your quality of life today, but it will work to shape your future, for good.

3. I have Rich parents: Another logic for not investing is a well off family background. It’s great if you have a base prepared, probably you do not have to struggle in life as much as those who have to start from scratch, but it doesn’t mean that you do not need to secure your future. Never let your future rest on inheritance, and there are multiple reasons why we say this:

  • You might not be a part of their Will altogether, they might donate their property to a temple, or you aren’t entitled to as much share as you were expecting; and this factor is capable of sabotaging your life.
  • They may not always remain rich, they may want to help you but can’t, because the riches are gone.
  • Thirdly, they may be willing to take care of your future, but what if you are gone before they do, who will take care of your family?

So, the bottomline is, never lean on your parents fortune, you have to invest for yourself for shaping your own fate.

To conclude, Investing is one thing, which should be done by everyone, according to individual financial capacities, it shouldn’t be given a pass for some lame perceptions and excuses, excuses are very easy to make, but may not be the right thing to do. Lastly, it needs commitment and intent, and not a lot of money to invest.

Secure Your Future Before You Secure Your Kids’

Friday, June 15 2018
Source/Contribution by : NJ Publications

What are your goals for your post Retirement Life? Pursuing all the things you wanted to but could not do over the last three or four decades, for there was no time. Learn guitar, knit socks for your grand kids, go for beach holidays, chill with your childhood buddies, make Pinnis for family, explore your spiritual side, do yoga, gratify your philanthropic spirit.

But wait, have you saved enough for your goals? Will you have a corpus big enough to accommodate your wishes?

No!

Then who is going to pay for the beach holidays, the guitar class?

Your Kids?

All the best in that case!

One of the major misconceptions which Indian society is living under until today is: There will be Reciprocal of Responsibilities. We believe that since we take care of our kids, invest in their upbringing, education, marriage, career; our kids will eventually return the favour by supporting us and funding our dreams in our old age. Based on this belief, and in our attempt to bestow the best upon our children and securing their future, we go so overboard that we forgo ours. There are instances when people break their retirement corpus or even take a loan in their old age for sponsoring their kids’ education, these are clear signs of inviting trouble.

Do you want to work till 70 years of age? What if your medical conditions don’t support your intention? It could be about survival, forget fulfilling the fantasies.

It isn’t that your kids won’t intend to, they might, but what if they aren’t able to afford your dreams? They may be willing to chip in wherever they can, but then their kids education will be more important for them than your yoga class or your beach holiday, and in that case, your retirement life will not be as rosy as you thought. You will have to sacrifice the last few years of your life with your spouse, compromising. The holiday, the guitar class, the yoga class, these aren’t your goals, these are your dreams, the real retirement goal is to ensure that you are able to provide for your dreams.

So, how do you go about planning for your Retirement goal?

For achieving a happy retirement life, you should do the following:

  • Firstly, Invest for your Retirement. Helping your kids grow so that they can stand up on their feet is your responsibility, so is your responsibility towards yourself, helping yourself stand up tall during your old age. Your kids can get an education loan for pursuing expensive higher education, they can take a loan for marriage or save some money and tie the knot in the court, but there is no alternate source of finance available for your retirement, but your Retirement Corpus. Hence, if you haven’t started yet, and are too busy with life and responsibilities, it’s time to be a little self centered and start investing for your retirement. You must seek advise from a professional for guidance on the investment product you should choose according to your age and risk profile.
  • Secondly, as you age, your medical expenses will rise, you’ll be a vulnerable target for diseases and hospitalization expenses can dig a big hole in your pocket. Hence, it’s essential to create an armor with a health insurance plan, so that you do not dip into your retirement corpus for your medical needs.
  • Thirdly, make sure the loans you have taken are repaid before you retire, including the home loan, and there is no EMI obligation left at the time when there are no inflows. Your retirement life must be stress free, and a major step in this direction would be that you shouldn’t be carrying the burden of your debts beyond your earning years.

So, to conclude, if you are amongst those set of parents who are spending every penny they earn on their kids, then this article is just for you. It’s great if you are working towards your kids future, their education, their marriage, but if you are doing it at the cost of your own future, then you are opening doors to your ill fate. Preparing for your old age is your prime responsibility, and it comes before all other goals. And about your kids, it’s important to raise kind and modest human beings. It is important to inculcate compassion, family values, love and respect in your kids; overseas education and a grand wedding are discretionary.

Managing Education Loan

Friday, June 22 2018
Source/Contribution by : NJ Publications

To stand out among 1.35 billion people, to meet the growing needs, to build a career of their choice, students wish to pursue their higher education from premier institutions in India or abroad. But most often quality education comes at a very high price, and it may not be possible for parents to fund such expensive education from their existing resources. Education Loan offered by banks and NBFC’s lays the way out, every year tens of lakhs of Indian students take education loans to pursue higher education and professional courses. Sometimes it is also not about affordability, many students take education loans because they don’t want to burden their parents with their exorbitant education cost. Education loans brings higher education within students’ reach, and also offers tax benefits on the interest paid on these loans under Section 80E of the income tax Act.

However, there are certain key points that you must take note of in context of education loan, that will help you better manage the loan:

Getting the Loan

  • Compare before you choose: The rate of interest on education loan varies between banks as well as between the loan amount. The difference in interest rates charged by different banks on the same amount of loan can be as high as 4-5%. Also, your college may have a tie up with certain banks, and these banks may offer a discount on the interest rate. So, compare the loan terms of different banks including interest rates, processing fee, repayment terms, etc., before choosing the bank.
  • Get the loan in tranches: Generally, the fee for higher education is payable in tranches, it can be semester wise or half yearly or quarterly, etc. It is ideal that you get the entire loan amount sanctioned, but withdraw only when your fee is due, since the banks will be charging the interest only from the time the loan amount is disbursed.

Repayment

We will first talk about the Repercussions of non repayment of EMI’s

  • Non Repayment of EMI’s can result in imposition of Penalties.
  • The Bank can seize the collateral attached to the loan.
  • Credit score of the borrower as well as the co-borrower (usually parents of the borrower) gets tarnished, which hampers your access to any other loans, like home loans or car loans in the future.

Post the 2008 global recession, many students failed in repaying their loans because of lack of or underpaid jobs and have faced the above repercussions. Although the situation has improved, but still there are cases when students do not get jobs immediately after college. So, it is very important that when you take an education loan, you must have a repayment strategy in place.

The income in the initial years of your career is low, but the EMI’s will be there, it is ideal to keep your expenses limited to make sure you don’t miss your EMI’s, also try to save some money after paying the EMI’s and expenses and build an emergency corpus to ensure there is no disruption in the flow of EMI’s in scenarios like a job loss, a sudden expense, etc. You can opt for the Auto debit option for your EMI’s, so that repayment is taken care of automatically.

The Education loan EMI’s generally starts after a year from the end of the course or six months after the job starts. This relief period is called the grace period or the moratorium period. The grace period is also a good time to start saving and creating a corpus for your education loan, since there will be no outflow of EMI’s. This corpus will help you in filling any gaps in repayment that may arise in the future. You can invest your saving in a Liquid Mutual Fund, so that you get a better rate of return than what you will get in your saving account, you can make partial withdrawals plus it is highly liquid, so you can easily withdraw even one EMI from your liquid fund in case you are likely to skip one for lack of money.

Generally only simple interest is charged during study period, if you pay this simple interest during your course itself, it can significantly bring down your EMI’s later.

What if you do not get a job? Before the bank starts penalizing you by levying heavy penalties for non repayment, and yours and your parents’ CIBIL score is affected, talk to the bank representatives, a suitable alternative could be figured out and your loan repayment may be relaxed. The bank may either extend the moratorium period or reduce the EMI by extending the loan tenure, etc. You will find a job sooner or later, the idea is to keep the bank in the loop to avoid any negative consequences.

Before closing the article, we have a piece of advice for the readers, Start investing from Day 1 of your job, if the burden of Education loan EMI is too heavy, so is the need to get into the investing routine and securing your future. Start with a small amount, say with an SIP of Rs 1,000 and increase the amount gradually. Education Loan is probably the first loan taken by an individual, it teaches you a lot about money and debt management in the early stages of your career itself. We hope that the above passage will help you in managing your education loan well.

Financial Literacy: A Must For Everyone

Friday, May 25 2018
Source/Contribution by : NJ Publications

Financial literacy is regarded as an important requirement for the effective functioning for any economy and society. Over the years, financial literacy ensures supports social inclusion and enhances the well-being of our communities. While financial inclusion is the primary criteria while evaluating the level of development & progress of any economy, true financial independence cannot prevail in absence of literacy. In this article, we shall be taking a closer look at what financial literacy truly means and the advantages of it.

What is financial literacy?
Financial literacy refers to the ability to make informed judgments and to take effective decisions regarding the use and management of money. It thus includes the awareness, knowledge and skills to make decisions about savings, investments, borrowings and expenditure in an informed manner. In other words, financial literacy would mean that you understand the risks & rewards associated with every monetary decision and are also aware of the other options available to you.

Signs of financial illiteracy:

  • Lack of awareness upon the need and importance of various financial services/ products.
  • Lack of access or knowledge as to how to access to services/products
  • Lack of knowledge and understanding of financial services/ products
  • Inability to ‘rightly’ chose between alternate financial services/ products
  • Inability to make proper assessment of the present & future financial situation
  • Inability to understand the risks & rewards of any financial decision

Why financial literacy is needed?
The need for financial literacy is felt in developed and developing countries alike. Even if you have financial inclusion wherein you have easy and fair access to banking, investment and credit products, the real benefit can only be enjoyed if you are financially literate. There are many cases and even high chances that in absence of proper knowledge, one can be exploited by intermediaries and manufacturers, alike, leading to grave financial loses or crisis. In a world with growing financial inclusion, rise in number and complexity of financial products and a need for financial independence, financial literacy has become a must for everyone.

From a regulatory perspective, financial literacy empowers the common man and reduces the burden of providing protection and even grievance redressal to the common man by the regulators. It thus makes the entire financial system more efficient, disciplined and progressive. Financial literacy not only marks an improvement in the quality of life but also on the integrity & quality of the markets.

Who needs financial literacy?
Financial literacy is for anyone who has somthing to do with money. Thus, there is no one who doesn’t need it since all of us are either engaged in earning, borrowing or spending money and do take financial decisions in our daily lives. Perhaps only infants, lunatic, godly men or old age dependents may be excluded from this group.

The focus of this article is on financial literacy that relates to you and your family members. Financial literacy is important for you, your spouse, parents and even children. Though one may argue upon the level and depth of the financial literacy knowledge required between different groups, an overall understanding is a must for all. With financial literacy, we have the following advantages

  • Clarity of financial concepts and terms
  • Making better financial decisions related to savings, investments, borrowings, etc.
  • Accessing financial products & services easily, without fear or prejudice
  • Building assets and wealth over time, leading to better financial health
  • Overcoming vulnerability and avoiding exploitation by people around us
  • Planning towards economic security to self and for family

Components for Financial Literacy:
The next question that arises is to what does financial literacy comprise of? You, most probably, may consider yourself as financially literate but may not be able to clearly outline the required knowledge surrounding it. We are presenting the broad outline to test oneself on financial literacy.

The following together can be considered as comprising financial literacy for any individual.

Financial Planning (FP) Borrowings / Credit
  • Life-cycle needs and goals
  • Advantages & need of FP
  • Components of FP
  • Current Status V/s Planned Status
  • When, How, Why & from Whom?
  • How much debt should one take?
  • Borrowing for Productive purpose
  • Pre and Post Borrowing Factors
  • Reducing vs. Flat Rate of Interest
Savings & Investments Financial Products & Services
  • Concepts of ‘Savings’ & ‘Investment’
  • How to Save & Invest
  • Relationship between income/ expense and savings
  • Assessing Risk & rewards in savings, investments & spending decisions
  • Wealth creation concept
  • Types of Risks
  • Post-tax / Real returns (after inflation)
  • Concept of Bank and types of Bank services / Bank Accounts
  • Operating Bank Accounts & bank instruments
  • Types and sources of Loan
  • Need & types of Insurance products
  • Types & features of Asset classes
  • Types & basic features of financial products available
  • Credit / Debit cards
  • ATM operations / Netbanking / Online payments
  • Equity markets
Understanding finance General calculation skills
  • Financial Independence
  • Time value of money
  • Terms (Inflation, Income, Interest, Tax, Capital Gains /losses, Market Risks, Returns, CAGR, Absolute Return, Insurance, EMIs, etc)
  • Practice of Budgeting & Planning
  • Insuring assets / future (life, health, car, property, etc)
  • Future value from present value
  • Present value from future value
  • Absolute Return
  • Simple & Compound interest

The above may seem to be a very comprehensive outline but the idea is to cover all the major aspects of money that one has to deal in their lives. While detailed knowledge may not be necessary under each heading, one should however have the broad conceptual understanding of the idea and/or knowledge of options, as the case may be.

Conclusion
Financial literacy is the primary step for financial inclusion since introspection changes behavior which in turn makes people seek and receive financial services and products. Financial literacy can lead to financial wisdom and financial independence in knowledge. It will give the ability to manage money not just deal with it and to use skills & knowledge to take wise decisions for the future.

We advise all our readers to ensure that they are ‘financially literate’ in the truest spirit. We also encourage all the readers to make their family members, especially spouses, parents and growing children financially literate. One may use the outline shared to impart such knowledge. Indeed it would be a great learning for anyone that would otherwise take great time & experience to gain. This would help increase the economic space, self esteem and the confidence level of any individual and make him/her ready to easily engage in the mainstream of the financial systems.

Investing After Retirement

Friday, June 29 2018
Source/Contribution by : NJ Publications

The ultimate goal of every investor is collecting a big corpus to secure a peaceful Retirement. So, you invest throughout your life and once your retirement approaches, you have your retirement corpus in your hand. Now what do you do, is it the end of investing? Shall you keep the retirement corpus in your bank account and keep nibbling at the big piece of cheese inch by inch? No, you can’t do that, you can’t let your life long perseverance die in your saving account. You need to have a post retirement investment plan to deliver justice to your money. Also, you may live long, so the next 3-4 decades are at the mercy of your retirement corpus, you don’t want to run out of money in the last 10 years, so your nest egg must be utilized in a way that it lasts you until your D Day.

There’ll be no new addition to the corpus, hence you must spend and invest wisely. So what should be your approach to investing after you retire?

There are various approaches that you can follow, depending upon your risk appetite. The Risk Appetite is dependent upon a number of factors like:

– Passive income source if any, like pension, rental income, interest income, and the amount of income;

– Whether you live in your own or rented house;

– Other assets that you may own like property, gold, stocks, etc,;

– and your attitude towards Risk.

Your Portfolio Allocation between Equity and Debt will largely depend upon your Risk Appetite, the sum of the above factors. Although we suggest retired investors to concentrate on limiting risk, yet if you have a stable financial background and a high risk appetite, then you can expose a major chunk of your retirement corpus to market linked products and vice versa.

There may be various approaches to Portfolio Management after retirement, which are different from the way you have been managing your portfolio during the working years. Some investors prefer securing their basic monthly expenses first by investing a portion in products which may give them a monthly income at least equal to their expenses and dedicating the rest to products with a high growth potential. While there are some investors who break their Portfolio into parts, the early, middle and last stages of retirement and invest accordingly. And there may be some who invest largely in Equity initially and as they age, gradually increase the Debt component by selling of Equity. And likewise there are many approaches, depending upon individual needs and preferences.

We suggest you to sit with your advisor and figure out your Portfolio Allocation and Investing Approach, which is in line with your financial position and Risk Appetite. Devise a financial plan and review it from time to time like you have always been doing.

Whichever approach you choose, you must be mindful of certain key points, which are as follows:

> In absence of a regular source of passive income, do not expose your money to excessive risk. A large chunk of the Portfolio should be invested in products where money can be withdrawn easily, without incurring any loss to the Principal.

> If you have any outstanding loans, then before investing, secure your mental peace by paying off your debt.

> Increase your emergency fund, an emergency can lead to a serious financial crunch since now there is no hope of a monthly pay cheque coming in to rescue you. Plus medical emergencies are also likely to rise.

> Do not limit yourself to traditional investing products, explore newer options like bonds, debt mutual funds, company deposits, etc., even if your risk profile demands you to limit yourself within Debt. The modern products are capable of delivering better returns, better flexibility, liquidity and investing convenience.

> Don’t invest in products where the volatility is more than you can tolerate.

The bottomline is, Retirement isn’t the end of investing, Investing is important, even though if you have a very large corpus or limited expenses, it is likely to be exhausted if not invested. Your Retirement is the beginning of a new life, now is the time to do things that you’ve always wanted to do. It’s the time to pursue your passions, and you can live your entire retirement life to the fullest by planning for your future and investing right.

ITR Deadline Is Near. File Your Return ‘In Time’

Friday, July 6 2018
Source/Contribution by : NJ Publications

With the ITR filing deadline not even a month away, it’s time to start gearing up to file your return, if you haven’t done already. Waiting for the last moment may not be wise for a number of reasons, there may be discrepancies in the TDS and the tax due, you may require additional documents or data, and moreover the tax filing website is often sluggish because of the heavy load on the last day. For any reason if you miss the deadline, the penalty for late filing may go upto Rs. 5,000, and you can also commit mistakes in haste. So, we suggest you to utilize the time in hand, collect your documents and data so that you can file the ITR in time. You can file the ITR by yourself on the e-filing portal: www.incometaxindiaefiling.gov.in, and there are various other websites, also providing a platform to file returns. Alternatively, you can also reach a professional for help.

So, here is a quick guide on how you should go about filing the income tax return.

Before moving on to filing, you need to have the numbers ready, and the corresponding documents, like documents supporting income, expenses, bank account details like ifsc code etc., for claiming refunds.

Once you are through with the groundwork, it’s time to file the return.

– The first step is to select the ITR form applicable to you. If you are a salaried individual, with income less than Rs 50 Lacs and/or income from one house property, and no business income, no capital gains during the year from sale of any assets, then ITR-1 form will be applicable to you. ITR-3 or ITR-4 for business income or income from profession. There are various other ITR forms, please refer the following table for other cases.

ITR Form Applicability
ITR 1 For Individuals having Income from Salaries, one house property, other sources (Interest etc.) and having total income upto Rs.50 lakh
ITR 2 For Individuals and HUFs not carrying out business or profession under any proprietorship
ITR 3 For individuals and HUFs having income from a proprietary business or profession
ITR 4 For presumptive income from Business & Profession
ITR 5 For persons other than,- (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7
ITR 6 For Companies other than companies claiming exemption under section 11
ITR 7 For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F)

Source: www.incometaxindiaefiling.gov.in

Business/Profession: If the business or profession is on a small scale and the incomes and expenses are simple and straightforward then you can file the return on your own. If the calculations are complicated, then we suggest you to seek expert help.

Salaried Individuals:

Enter the incomes

This year, the IT department seeks a detailed breakup of the income earned by salaried individuals, like the basic salary, value of perquisites received, profits in lieu of salary, deductible allowances received. Be careful while filling in the details. You’ll get the break-up in the Form 16 that you get from your employer.

Enter other incomes, apart from your primary source of income,

– Rental incomes

– Long Term and Short Term Capital Gains received during the year, check the exemptions allowed under Section 54, 54B, 54D where the capital gains is on the sale of a property.

– Interest incomes, like interest on FD’s, PPF or NSC redeemed, bonds, savings account, interest income on tax refunds, etc.

Note, that interest income from Savings account is exempt upto Rs 10,000 u/s 80TTA and this exemption is not applicable to FD’s.

Also the bank deducts TDS @ 10%, if you fall under a higher slab then you’ll have to pay the extra tax.

Enter the exempted expenses

– The investments and/or expenses falling under Sections 80C, 80D, 80G, etc.

– Home Loan principal and interest are exempt under separate sections

– Investments under different sections

– Make full use of your salary breakup, uniform allowance, HRA, transport allowance, etc., subject to the bills furnished by you to the HR department.

– Even if you did not claim for an exemption which you had already paid for, while submitting the proofs in the March month, claim for it now. You can always claim a refund.

Check the form 26AS, to cross check the TDS. This form is available on the tax filing portal. In case of any discrepancy between the TDS appearing in the above form and in your form 16, or other TDS documents, then reach your employer or the payer of the respective income.

Enter the TDS details

Pay self assessment tax, if any. If the tax liability is more than the tax paid as per the form 26AS, then pay the additional tax by filling the challan 280 also available on the tax filing portal. You will have to enter the details of the Self assessment tax paid, like the BSR Code, Challan No., tax amount paid, etc., in the return.

In case of a refund due, enter the bank details in the ITR form.

File the Return.

And Lastly, e-verify the return. You can do it within 120 days of filing the return. There are various online methods to e-verify like Net Banking, Aadhar OTP, bank account, etc. Alternatively, you can also send a hard copy of the ITR-V to CPC, Bengaluru.

Investing Mythoclast

Thursday, July 12 2018
Source/Contribution by : NJ Publications

We have our viewpoints about people, places, things and a variety of other stuff in life. Men look feminine in Pink, Chinese is better than Italian, or the other way round, hills are more serene than beaches, and vice versa, and likewise. We cling on to our ideas and perceptions, and over time they become fundamental to our existence. Our perceptions are influential in character and control our decision making ability. They become so inherent to our nature that it is difficult to think and take decisions from a neutral mindset. Likewise, many of us have also developed some perceptions about investing, which are mostly misconceptions, they have hampered our decisions and have undermined the growth numbers of our investments. In this article, we have listed and have tried to debunk three most common myths associated with investing:

1. My traditional life insurance policy not just saves tax, but also provides Life Cover as well as Creates Wealth: The primary reasons behind investors buying traditional life insurance policies is they fall under Section 80C of the Income tax Act, along with PPF, NSC, FD, etc. And secondly they serve the dual purpose of investment as well as insurance. But the irony is a traditional endowment policy practically doesn’t serve the purpose, it isn’t good at any of the above.

Facts:

1. Yes, the traditional endowment policy does save tax, but that’s the only real return you get out of it. The return numbers are so petty that they may barely cover inflation.

2. The cover that these policies provide is again highly inadequate to take care of your dependents’ needs for a long period of time, vis a vis the high premiums you pay. The modern term covers are much more affordable in terms of premiums and the cover provided also justifies the term ‘life cover’.

3. And Yes, you will get your investment back if you don’t die after a certain period of time, but as indicated above the returns are slim, so the corpus you will get will also be modest. The modern ones won’t give you your money back if you don’t die, but they will serve their purpose, provide Adequate Insurance.

The best way to Invest in Equity is through IPOs: Many investors believe that investing in IPOs is the sure shot formula of making big bucks quickly. And this is the reason why the markets are flooded with IPOs in bull market conditions, companies want to capitalize on the positive market sentiment. People have made tremendous money in IPO’s, but we must remember that not every IPO is D-Mart. If some investors have made money, many others have also lost money in IPOs. Investors aim to enter at low prices, but the reality is the IPO stocks are already overvalued when they enter and they lose money when they list and the prices correct to reflect the true value of the stock. Investing in Equity is not based on profiting from a day’s volatility, the right way of investing in Equity is by focusing on the fundamentals and profiting from the long term growth of the company.

Lower the Price, Higher the Returns: Investors want to Buy Low and Sell High. On this basis many investors believe that a cheaper stock is a better deal than an expensive stock. But the reality is a Rs. 10 rupee stock could be expensive and a Rs 1,000 stock could be cheap. The price of the stock is based upon it’s fundamentals, it’s management structure, it’s past earnings and future earnings potential, the debt equity ratio, etc. If the fundamentals are strong, the Rs 100 stock is capable of growing spectacularly and vice versa. The same applies to Mutual Funds also, lower NAV’s don’t mean that the fund is cheap or expensive, it reflects the fundamentals of the underlying stocks and other securities. Do not base your decision of investing in a Mutual Fund Scheme on it’s NAV, NAV is just the price of a unit of the scheme, concentrate on your needs and try to match them with the fund’s characteristics and investment objective. Your financial advisor will help you selecting the perfect fit for you.