If Your Fail To Plan, You Plan To Fail!

Planning is not everything. It is the only thing.
__________________________________________

Dear Reader

If you’re a corporate (private sector) employee or a self employed person, ASK YOURSELF these questions which are so very important for you and for your family’s financial security:

X Is your & your family’s future secure if something like accident, disability or job loss or any other contingency should happen to you and income stops coming? 

X Will you be able to meet your responsibilities in case of any of the above mentioned unforeseen circumstances?

X Will your family be financially fine if you’re not there suddenly one day?

X What are you doing to secure your old age when you will be retired and there won’t be any regular income coming? (You don’t have the privilege of monthly pension.)

X Are you sure your contributions/savings (if any) are going to be enough to meet the expenses of your children’s education & marriage?

X Are you sure you are doing enough (if any) to meet your retirement needs like monthly household expenses, medical & hospital expenses and so on.

Now consider this. Do You Know if inflation is 8% per annum and:

Ø  Your monthly expenses are Rs. 25000 today; you will need Rs. 1.71 lakh per month after 25 years.

Ø  The education of a child costs Rs. 10 lac today, it will cost Rs. 40 lac after 18 years.

Ø  If your budget for one child’s marriage is Rs. 15 lac today, you will need Rs. 70 lac for the same after 20 years

We get busy attending our immediate concerns like work, monthly bills, entertainment, social responsibilities etc. But forget to do the most important thing i.e. securing our and our family’s present & future.

We help corporate employees not only become aware about the need of the financial planning through our Financial Planning Literacy seminars & workshops but also help them with their Financial Planning needs on one to one basis.

So if you would like us to do the one for you, please feel free to contact us.You can also refer us to your HR department. And if you want us to approach the HR Department, we shall be glad to do that using your 

              Be Smart & Intelligent With Your Money

                  Your Life! Your Money! Your Way!

  

Feel Free to write to us at satinder@yourmoneyyourway.in       

 

           If You Fail To Plan, You Plan To Fail.

  

Quote of The Day

"Even if you are on the right track, you will get run over if you just sit there."~ Will Rogers

Can You Trust Your Bank Anymore?--

I know what you may be thinking after reading the title of the article. First thing that might have come to your mind is recent Citibank fraud or should I say a fraud masterminded by one of Citi bank’s staff to be precise. Well, that is really sad event for sure and reminds us the dangers of having blind trust again as far as our money is concerned. But this article is not about Citi bank event. This article is, in fact, speaks about another bigger issue or should I say fraud which happens frequently with the innocent and gullible bank customers but we hardly get to hear about it in the media. This article is about the mis-selling of commission based products like insurance which is done by the bank staff or “Relationship Managers’ so to speak. I was in selling job myself for ten years. But I am proud of the fact that I have never ever done any mis-selling in my entire career. For me mis-selling is equivalent to cheating. somebody. No matter whether I was able to meet my target or not, I was very clear about one thing that I would never resort to mis-selling.

Banking system is an integral part of any economy. And so is banking of our lives. We cannot think of our financial life without banks. In fact, banking is the most basic and primary need as far as our money is concerned. You keep your hard earned money in your bank savings account. As a matter of fact most employees get their salaries transferred directly to their savings or salary accounts these days. The trust for banks comes out naturally as we know these are highly regulated institutions and government banks even give us the peace of mind as they have the backing of the government. 

Being a part of our life, banks saw this as an opportunity to increase their profits and have started selling not only their own products but also of the third party like insurance and mutual funds on commission basis. And if you have even little bit of idea of sales, you may know how the sales targets are set and then poor sales people have to achieve it. Let me share with you a true story of my uncle’s in Delhi. He went to bank to make fixed deposit or FD three years back. And he ended up with an ULIP policy at the age of 50+ sold by one of bank staff. The reason given was that it was a better product that a boring FD. (I, myself, am not a huge fan of FDs though conditions apply). And if you are little bit updated, or yourself a victim of this product, you will have a real good idea of how horrible this product was. It was sold by all the people involved whether banks, brokers or individual insurance agents aggressively as they were making handsome commissions. And you, the customer lost hell lot of your money. Clearly the motive was and is to make a killing out of you, to earn big fat commissions not your wellbeing. Coming back to my uncle, he paid roughly Rs. 81000 and today if he surrenders that policy, he is able to get roughly around Rs. 38000. And that’s what happens when you go for investments blindly trusting either your so called “Relationship Manager/RM” at your trusted bank or insurance agent without understanding its implications, risks involved or even putting any effort to understand in the first place. I know for fact that most of you reading this article have most of your investments, if any, either in insurance policies or PPF or NSCs or FDs. How Do I know that? Because I know the reason  the most of the average salaried class people do the investments. For tax saving and safety trying to avoid risk. (And as far as risk is concerned, there is no investment with zero risk. I will discuss on this topic in another article) That’s about it. If there were no tax incentive today for these instruments, I bet almost everybody will stop buying insurance or stop investing in PPF and NSCs and so on. Because we don’t buy insurance for protection. We are sold (wrong) insurance product for tax saving. Read the last line again carefully. We don’t buy insurance but are sold or should I say mis-sold. Sad. But true.

Sometime back an interview of the head of Insurance Regulatory Authority of India (IRDA) was published in a magazine. He said the insurance industry made a mistake of selling insurance as an investment product. The immediate thought that came to my mind after reading this was who allowed them to do all this in the first place.

The other day I received a call from one of my clients enquiring how much commission an agent gets normally for a money back policy. He didn’t ask me whether this policy was good or not for him. Whether he needed it or not in the first place. As I could make it from the call, the reason he was curious to know about the commission part was so that he could negotiate with his agent some kickback (his share) out of that commission. No wonder, we deserve to be cheated, I mean mis-sold. If that is the attitude people have towards their hard earned money when it comes to taking good care of it, what kind of financial future one can expect. So you the customer is also responsible to some extent. You allow yourself to be cheated by not asking the right questions or thinking whether you are doing the right thing before signing the cheque.

Anyway, coming back to banks. I have many similar stories where people were sold ULIP through banks and they got their fingers burnt badly, really badly. So the next time you visit you bank and you are approached by the smiling ‘RM’, give it a thought, “Can You Ever Trust Your Bank Anymore The Way You Did?”

Be Smart & Intelligent With Your Money.

Your Life! Your Money! Your Way!

Your Financial Coach 
Satinder.

Founder & Chief Financial Planner

Your Money Your Way

CERTIFIED FINANCIAL PLANNERCM

Committed To Your Financial Success 

"The saddest words in life are I could have."

 

If You Fail To Plan, You Plan To Fail.

Quote of The Day

"I know of no more encouraging fact than the unquestioned ability
of a man to elevate his life by conscious endeavor."

--  Henry David Thoreau

 

Build A Financial Plan Around Your Needs-Courtesy-FPSB India
We all have been thought how to earn money. We go to college, learn skills, gain knowledge, specialize, get a job and start earning money. But what’s more important is application of the money earned to fulfill our basic needs and meet our life goals.
Read More>>

 

Your Financial Coach 
Satinder.

Founder & Chief Financial Planner

Your Money Your Way

CERTIFIED FINANCIAL PLANNERCM

Committed To Your Financial Success 

"The saddest words in life are I could have."

 

If You Fail To Plan, You Plan To Fail.

All You Wanted To Know About Equity Linked Saving Scheme (ELSS)

All You Wanted To Know About Equity Linked Saving Scheme (ELSS)

Most of the people during the tax saving season (JAN-FEB-MAR) rush up for tax saving to invest upto 1 lac which qualifies for tax exemption under section 80C. And end up in paying LIC premium, PPF, NSC, 5 year bank FDs and other traditional tax savings instrument. Let us tell you one another option available: ELSS

What is ELSS?

ELSS - Equity Linked Savings Scheme is a type of mutual fund which is qualified for tax exemption under section 80C. Let’s dig into more information on this scheme.

Ø  An ELSS is a mutual fund scheme that invests in equity and equity related securities.

Ø  ELSS is just like a diversified equity fund in terms of their portfolio.

Ø  They have a 3 year lock-in period.

Ø  ELSS offers a tax deduction under section 80C upto investments of RS. 100000.

Advantages of ELSS over NSC and PPF

Ø   Main advantage of ELSS is its short lock-in period of 3 years in comparison to any other tax saving instrument. Maturity period of NSC is 6 years and PPF is 15 years.

Ø   Since it is an equity linked scheme earning potential is very high compared to PPF or NSCs.

Ø  Investors who want periodic dividends can consider the dividend payout option under the ELSS category, wherein the dividends received are also tax free. In fact, this is the only investment option under Section 80C which provides interim cash flow during the lock-in period.

Ø   Investor can opt for Systematic Investment Plan (SIP) rather than having to put money in lump sum.

Disadvantages of ELSS

Ø   Risk factor is high compared to NSC and PPF.

Ø  Returns are not guaranteed as these depend upon the market.

Ø   Premature withdrawal is not allowed but it is allowed in other instruments in some specific conditions.

How can an investor buy ELSS from mutual funds? How is the return in the ELSS compared to other schemes like PPF and NSC?

ELSS could be open-ended or close-ended in nature. Majority of ELSS schemes are open-ended. This means they are open for subscription on all business days. As the name suggests, the scheme primarily invests in equity market by buying equity stocks of companies listed on the stock exchanges.

The units of the scheme are offered at the NAV (net asset value). The NAV is announced for all business days and keeps changing primarily depending upon the movement in the prices of stocks held in the portfolio of the scheme.

Equity as an asset class has given a higher return over the long term. ELSS has the potential to give substantially higher returns as compared to that from PPF or NSC over the long-term. The returns from PPF or NSC are in the range of 8 per cent and at times may not beat inflation.

Returns from ELSS could fluctuate depending upon the performance of the equity market and also the stock selection criteria of the particular fund manager. Returns from ELSS could even be negative in the short to medium term. As on 31st December, 2009, the average compounded annualised growth rate (CAGR) over 3 and 5 years period for the ELSS category of funds was 8.2 per cent and 20.1 per cent respectively. So ELSS is recommended for longer duration and SIP is the ideal method to invest in ELSS.

ELSS also scores over other tax-saving schemes since it offers tax-free return (long-term capital gains and dividends are totally tax-free as per the current tax structure). Only PPF offers tax-free return but it has a maturity period of 15 years.

What should be the criteria for choosing ELSSs offered by the different MFs?

The investor should apply the following criteria while selecting an ELSS for an investment:

Ø  The track record of the fund at least over the last 2 to 3 years. One should not attach too much importance to the recent 1-month or 3-month performance.

Ø  It is not necessary that the investor should select an ELSS based on its large size.

Ø  The discerning investor could also look at the portfolio of the scheme to ensure that it is well-diversified across market caps.

Ø  If the investment amount is more than Rs 20,000, then probably the investor could select two ELSS funds instead of one. 

How much should one invest in ELSS?

The amount that needs to be invested in ELSS would depend on the other investments already committed towards PPF, EPF, insurance etc. A young investor could use the entire limit of Rs 1 lakh for investing in ELSS if s/he is not investing in other tax-saving instruments under Section 80C whereas an aged investor could decide on a mix of three or four investment options. But, an investor should not ignore the ELSS option because this is the only option which has the potential of delivering higher returns.

Be Smart & Intelligent With Your Money.

Your Life! Your Money! Your Way!

 

Your Financial Coach 

Satinder. 

CERTIFIED FINANCIAL PLANNERCM 

Committed To Your Financial Success 

"The saddest words in life are I could have."