Author: Sanjeev Govila

29 Jun 2017
Kitna Mileage deti hai- Financial Planning, humfauji.in

Kitna Mileage deti hai?

Sir, I’ve told him that he has a 80% Debt and 20% Equity portfolio where safety has been given more importance as this is his retirement corpus, but he insists that he won’t accept anything less than 15% annualized returns since the markets are now booming!” -I could make out my hapless young financial planner was at her wits end.

“Sanjeev, what is this yaar? My overall portfolio returns are 25% CAGR (Compounded Annualized Growth Rate) but this one stupid fund is stuck at 17% and my planner is just doing nothing about it!”, ranted one of our aggressive customer.

One of our bigger investor has moved almost 50% of his life’s savings to a well-known Portfolio Management Service (PMS) because his initial ‘test-drive’with their 100% equity portfolio produced great results in these rising markets.

We routinely get calls from prospective clients who ‘haggle’ with us on ‘returns’ – if they invest with us, will we surely get them 15-20-25% returns? If not, then why not? During such conversations, sometimes we feel as if we’re in the business of manufacturing returns rather than managing portfolios, helping meet customers’ future financial goals and keeping them away from harm’s way!

So, what am I trying to bring out here by these examples? ‘Safety’ and ‘Returns’ are two ends of the investment scale. The twain shall never meet!! Your own personal investment slider has to be placed on that scale in such a manner that it meets your risk comfort level, takes you solidly towards meeting your future requirements (‘financial goals’) comfortably and of course, takes care of the market conditions – now and in anticipated future. If you want more safety, you have to move away from returns expectations while desire for more returns will always compromise safety. This is a universal rule and never gets flouted.

The way we do not buy a car just because it gives high mileage disregarding all other factors, we do not need to only look at best returns all the time disregarding its suitability to us, risks taken by it and whether it enables us to get the money when we actually need it.

Most of us know this but we still keep hoping to hit upon that magic formula, that magic investment avenue, which will get us the ‘highest returns with highest safety’. Many unscrupulous elements, sensing this innate human desire, have made their fast bucks on it – the Hofflands, Sterling Tree Magnums, Ponzis and sms-stock-tipping schemes know this weakness and routinely surface to earn their millions and billions. We all hear and read about them, sympathize with the conned ones, bless ourselves that we’ve not fallen for such schemes and then go about looking for such quick returns schemes ourselves! Somewhere we assume that ‘high risk, high returns’ actually implies that if you take high returns, you get assured high returns!!

Herein comes a very basic question – What is the actual aim of investing? Is it to get highest possible returns at any cost and risk, Or is it to make our money grow so that we can meet our future requirements of life, give our children the best education, give our families a great standard of living, and have the money available in the right quantity when we need it? We can already sense you nodding to the latter. If that actually were so, why not make that as the start and end point of our investment process? Why not plan out how much we need for our future big-ticket expenses, what are the best investment avenues to accomplish each one of those ‘financial goals’, how to go about it so that we reach that end point without much risks and how to remain tax-efficient during the whole journey? Believe us, the investment journey will be more pleasurable, more sure-footed, and lead to far less sleepless nights if you change your focus from ‘Kitna Mileage Deti Hai’ to ‘Meeting my financial goals in life’.

And that’s where the concept of financial planning comes in – but then that’s a separate topic by itself, of which a large amount of knowledge is available on our Blog humfauji.in.

And for heaven’s sake, do not fall for those predictions of Sensex or stock levels – such predictions keep coming all the time and they sometimes even turn out to be true. But then, even a dead clock shows correct time twice a day!

For more information, feel free to reach us on, contactus@humfauji.in or call + 011 – 4240 2032, 40545977, 49036836 or

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10 May 2017
Where are your 6th Pay Commission Arrears

Where are your 6th Pay Commission arrears?

The bonanza

1st Jan 2006 was a magic year for Govt servants round the country. The 6th pay commission was operational from that day and had started working on the 10 Year ritual. It did take some time to give its final recommendations, but it was touted as one of the best pay commissions that Govt servants in India had seen. People got a good increase in pay and allowances, hefty arrears and there was rejoice all around.

Even before it had come around physically to all, most of the defence officers had already planned its expenditure. Some had to buy a new car, some a great vacation (alas! there were no selfiesof the vacation spot to post on facebook at that time), some for white goods and some to pay off loans etc. Some even indulged in risky bets like direct stocks or commodity/derivatives play without an understanding. And since it took a long time for the arrears to actually come, they were pretty hefty when they finally came. So lots of dreams got fulfilled and financial satisfaction achieved.

While the bulk receivables were planned for, hardly anybody planned to deploy the good monthly increase in take-home pay even after the hefty taxation. Consequently, the increases got absorbed in the routine and the lifestyle expenses adjusted to take it in without any real long-term benefit accruing to most of the officers.

But where’s all that money now?

Today, do you remember where haveyour 6th pay commission arrears or increase of pay gone to? Or for that manner the 5th or 4th pay commission monies? Has it really contributed to your family’s lifestyle or got something tangible or intangible for you? Most of the people would not really be able to answer this question unless, by chance or by design (or by mistake!), they invested the bulk amount in a credible financial or physical asset or used the monthly increases in salary to pay installments of a loan, or better still, start fresh Systematic Investment Plans (SIPs).

Are you on the way to repeat the same with your 7th Pay Commission (CPC) money – bulk as also monthly increases? Have you made a credible plan to utilize both effectively so that when 8th CPC comes around, you can look back with satisfaction and pinpoint how the decadal exercise adds real value to your family’s life?

So, What should you be doing then?

You have many options for the bulk that will be received as also the monthly increase that will come in your pay. Our suggestion is as given below:-

Bulk Amount: You should use this to pay off your large loans – definitely the expensive credit card and personal loans, car loans, loans against property (LAP) and any other loans that you’ve taken like the white goods loans. It also is a good occasion to at least part pre-pay your home loans and bring down your overall interest burden. If you are fortunate enough not to have any such loans, look at investing this money wisely.

Monthly Increase in Pay: Whether you realize it or not, this is the part which will create your future wealth and give you the ability to meet your long-term obligations. As they say, little droplets make the mighty ocean. You are likely to receive about 15% increments in your gross pay. Instead of following Murphy’s Law and let your expenses increase to absorb the hike like the last pay commission, use this for systematic investing on a monthly basis. And start the process of setting up this systematic investing now, rather than wait for the money to start coming in. Research has shown that if the plans are put into motion well before money actually comes in, the chances of the investment plans surviving beyond a few months are almost 100%.

And what should you invest in?

Getting into a carefully worked out combination of Equity and Debt funds would be a very good idea for the long term as per your future requirements and risk profiling. Make a good and balanced portfolio of mutual funds and start off with monthly SIPs (Systematic Investment Plans) of a MF portfolio. If you don’t have any requirements of the bulk amount, plough that bulk too here. If the requirement for the bulk amount is later, use Liquid Funds to park them and get a better return with flexibility to take it out whenever you want in whatever number of installments.

Make your money count. When 8th CPC comes, you shouldn’t be left wondering where did your 7th CPC money went!!

Need help in planning or organizing this? Give us an email at contactus@humfauji.in or Buzz us in on tele numbers 011-4054 5977 / 4240 2032 / 4903 6836 or send us a SMS / Whatsapp on 9999 053 522

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26 Apr 2017
Are you helping your Earning Child manage the money Wisely

Are you helping your Earning Child manage the money Wisely?

There is no doubt that accumulation of substantial wealth generally occurs only over a sustained period of time. The best way to do it is the slow and steady manner in which your earning child needs to go the disciplined way and accumulate the drops that will make the mighty ocean. All this is, however, common knowledge – no points for guessing the same. But the point where the script differs is what financial instruments to save in? Believe it or not, it has been statistically proven time and again that it is not the timing of investments but the asset allocation – ie, what all do you invest in and in what proportion – which matters over a long period of time. Wrong choice of instruments will do irreparable damage to the wealth creation efforts while incorrect timings can easily be handled by regular investments in a disciplined manner over a long period of time to achieve rupee-cost averaging. Fixed interest instruments like bank / company FDs achieve this averaging by the method of ‘laddering’ where new FDs are bought every year and maturing older FDs are re-invested to create the ‘ladder’ effect. In case of equity instruments like the equity-diversified mutual funds, Systematic Investment Plans (SIPs) achieve the same effect of riding out the market fluctuations in the same manner as a flywheel rides out the engine torque variations in an automobile.

However, still the original question of correct asset allocation remains unanswered.

Generally it is seen that, at least in the initial earning years of an earning child, he/she is heavily dependent and influenced by his/her parents’ (generally father’s) pattern of investment. If the influencing parent is conservative and only goes in for safety of capital like in provident fund, bank FDs, insurance policies and NSCs, the child also thinks on similar lines. The fact that these fixed interest instruments are almost never able to keep up with the monster of inflation, and consequently provide negative inflation-adjusted real rates of return, is lost sight of. Thus, while the money may seem to be growing in these instruments in absolute terms, its purchasing power (or effective worth) is being lost at a rate equal to the difference between inflation and tax-adjusted returns of the investment instrument. To take an example – if a bank FD gives 9% rate of interest and the child is in 20% tax-bracket (ie earning between Rs 5 – 10 Lakhs a year), his/her actual returns on the FD are 9% minus 1.8% tax (20% of 9%), that is only 7.2% per year. With the consumer inflation stubbornly at around 9.5% today, the child’s money’s worth is being lost at the rate of 2.3% per year on a cumulative basis! The returns are likely to get further pruned in the current era of high-inflation and falling-interest-rates as this 2.3% gap widens. If the same money was to be invested in SIPs of equity-diversified mutual funds, the long-term returns of the same would be 12% per annum on a conservative basis while being fully tax-exempt as per the current tax laws. Adjusted against inflation, it is likely to give 3% positive cumulative yearly returns on a conservative basis. Of course, one has to keep faith in the long-term returns potential of equity while not getting unnerved by the short-term equity-typical fluctuations.

So finally, how should you, as a financially savvy parent, guide your earning child who has many years of savings potential with him/her? He/she should:-

  1. Save a small amount regularly in fixed-income instruments (like PPF or EPF) for safety and certainty of returns.
  2. Take a term insurance plan for getting a substantial amount of insurance (say, typically Rs 1 Crore or so) at a premium which will be meagre at his/her young age.
  3. Take a medical insurance preferably with life-time renewability, for an adequate amount unless he/she has the surety of employer-provided medical cover like in a Govt job.
  4. Go in for maximum amount of SIPs in equity-diversified mutual funds (MFs) on a monthly basis with long-term in mind. Investment in MFs should made through a carefully constructed balanced portfolio with regular monitoring rather than as stand-alone MFs bought just because they are individually performing the best today.
  5. At some point in future, typically 5-10 years after the child starts earning, you can tell him/her to go in for a house/flat using a home loan with EMIs on a regular step-up basis so that the loan repayment increases as the child’s income increases.

An investment pattern as above is likely to provide the child a substantial accumulation of wealth for future while still giving enough liquidity for any requirements in between.

And what should you tell him/her to avoid? Insurance as an investment vehicle; more than 20% of the regular savings potential into fixed income financial instruments; short-term trading in equity, commodities, futures & options etc unless the son/daughter really understands the same; and lastly, credit card debts which are not repayable in the very next payment cycle.

I am sure your son/daughter will be ever-grateful to you for this intelligent hand-holding and on your part, you would also not have to worry whether you guided him/her well on the financial front as well as you did on other aspects of life.


With regards,

Col (retd) Sanjeev Govila, CERTIFIED FINANCIAL PLANNERCM

CEO, Hum Fauji InitiativesTM,
Your Long-term Partner for Wealth Creation
E-511, 2nd Floor, Ramphal Chowk, Palam Extn, Sector 7, Dwarka, New Delhi-110077    |   Tele: 9999 022 033, 011 – 4054 5977, 011 – 4214 7236  |  humfauji.in

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25 Apr 2017
LET YOUR SIPS ROLL, -Systematic Investment plan

LET YOUR SIPS ROLL, COME WHAT MAY

The markets have been choppy lately for past four months and are reflecting the drunken movements of a ship in turbulent waters. As always happens in similar times, we have started fielding the familiar questions from worried customers – Is the India story dead? ; Should we get out of the mutual funds now? ; You said I’ll get good returns – see them now; I’m not even getting the FD returns on my investments; or worse – Get me out of these funds before its too late even if I have to pay tax and exit load on them!

This is the same story every time. A large number of investors get into equity mutual funds when the markets are doing well with the avowed aim of investing ‘for the long term’. But the moment there is some volatility, their ‘long term’ perspective becomes ‘short term’ in no time and they get out. Consequently, they get in at high rates, get out in panic at lower rates, and the cycle continues. They almost never get to see the returns that equity investments give in the long run, always maintain that equity should be avoided at all costs. Their long-term ‘real’ requirements suffer due to short-term ‘notional’ losses and they would revert to so-called safe investments of FDs, post-office products and insurance policies which would invariably give them negative post-tax-and-inflation returns, thus effectively eroding the purchasing power of their money.

The Business line newspaper column (Dated 14 June 2015) reproduced below gives out this same theme.

Don’t let market turbulence scare you. SIPs work well only because equity investing is a roller-coaster ride

‘Buy low, sell high’ — lesson 101 for success in investing is really a no-brainer. But for us emotion-driven humans, this cardinal principle is easier said than practised. When the market turns choppy, as it currently has, many of us panic and stop our systematic investment plans (SIPs) in mutual funds.

Don’t make this mistake. SIPs work great in the long run precisely because the equity investing is a roller-coaster ride.

In a SIP, you invest a fixed sum at regular intervals to buy units of mutual funds. The number of units you get depends on the prevailing net asset value (NAV) of the fund at the time of investment; the higher the NAV, lesser the number of units you get. And lower the NAV, higher the number of units in your kitty.

So, when the market and the NAV fall, you accumulate more units of the fund. This results in what is called ‘cost averaging’ — your average cost of acquiring the mutual fund units comes down.

In the long run, despite the volatility during interim periods, equity as an asset class and well-run equity mutual funds should see their values trend higher. Your return will be maximised when the average cost of investment is minimised.

This happens when you buy cheap, making a falling market the best time to invest in SIPs.

Need help in planning or organizing this? Give us an email at contactus@humfauji.in or Buzz us in on tele numbers 011-4054 5977 / 4240 2032 / 4903 6836 or send us a SMS / Whatsapp on 9999 053 522

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20 Apr 2017
Are you ready for ITR Filing?

Are you ready for ITR Filing?

We’re ready to file your Income Tax Returns (ITR) for the Financial Year (FY) 2016-17 [that is, Assessment Year (AY) 2017-18]. You may not have received your Form 16 so far from your employer, but you can send us all the other details – we’ll get everything ready for you since the Govt has introduced a few new check items for filing ITRs; as soon as you get your Form 16s, please send them to us at the earliest.

 

This year we’re starting a new tax service for which there has been a persistent demand – Advance Tax service along with regular Income Tax filing. Hence, you have the option of:-

  • Filing only the ITR for the FY 2016-17, ie, for the period 1st April 2016 – 31st March 2017, as regularly done by you.
  • Combination of getting your Advance Tax for the Financial Year 2017-18 (ie the current financial year which has started from 1st April 2017) along with the ITR for FY 2016-17 at a small extra nominal charge. Please note that Advance Tax service for FY 2017-18 is not available if you do not file your ITR for FY 2016-17 through us.
  • If you haven’t filed your ITR for FY 2015-16 (for the period 1st April 2015 – 31st March 2016), that can also be done right now.

Please let us know what service would you like to go ahead with us, and either give us a mail on incometax@humfauji.in or whatsapp/SMS the requirement on Phone number 09999 053 522. We would revert back to you with a detailed mail on how to go ahead with the service you’ve chosen.

Our charges for the Advance Tax and ITR filing are as below. Do not miss out details of the concession given by us to our existing Investment Clients given later in this mail. Please remember that we are referring to Advance Tax service for the FY 2017-18 (01 Apr 2017-31 Mar 2018, the current financial year) while ITR filing is for the FY 2016-17 (01 Apr 2016-31 Mar 2017, which has just got over):-

 

Category of IT Return ITR Charges Advance Tax charges
Individuals with income from Salary/Pension only, normal HRA calculations and rentals from a maximum of one property [ITR-1] Rs 1000/- Rs 250/-.

For all our existing Mutual Fund Investment Clients, these are waived off if they get their ITRs filed by us.

Armed Forces JCOs/OR (Personnel Below Officer Rank, PBOR) with income from Salary/Pension only and rentals from maximum one property [ITR-1] Rs 500/-
For Individuals having house property income from more than one house and/or capital gains computation from stocks, mutual funds, property sale etc. (We assume moderate calculations of Capital Gains. If calculations are very time-consuming, charges may be higher) [ITR-2] Rs 1500/-
Professional Income (With Income Expenditure statement) Rs 2500/-
Professional Income (With Income Expenditure statement, Capital account statement and Balance Sheet) Rs 5000/-
For NRIs (for Indian Income, simple tax return) Rs 2500/-

 

For the clients who have reposed a huge faith in us and entrusted us with their large savings, we are grateful to them for it and wish to give the following complementary services to them:-

 

Current Mutual Fund Investments with us (As on 30th  April 2017) No ITR Filing Fee or Advance Tax fee

[The complementary ITRs need to be only of ITR-1 or ITR-2 categories. Difference chargeable for other categories]

Above Rs 1.5 Crores Complementary ITR filing for Self, Spouse and 2 more persons (unmarried Children / parents only)
1.0 – 1.5 Crores Complementary ITR filing for Self and Spouse
75 Lakhs – 1.0 Crores Complementary ITR filing for Self.

 

A large number of people are not very clear about what is Advance Tax. A write-up on the same is given below.

 

What is Advance Tax?

 Contrary to common perception, your Income Tax due for a financial year is required to be calculated in advance and is to be paid throughout the year in instalments as laid down by the Govt. To explain this, say your income for the financial year 2017-18 (ie, income earned from all sources from 01 Apr 2017 – 31 Mar 2018) is Rs 12,00,000 (12 Lakhs). Total Income Tax on this comes out to be Rs 1,72,500. Without considering any complications like tax savings, education cess etc, let’s see how the Govt expects you to pay this tax:-

 

Due Date for Advance Tax Instalment Percentage Advance Tax Payable Amount Payable in our Example
On or before 15 June 2017 Not less than 15% of total tax Rs 25,875
On or before 15 Sep 2017 Not less than 45% of total tax Total Rs 1,03,500 including amount paid earlier, if any
On or before 15 Dec 2017 Not less than 75% of total tax Total Rs 1,29,375 including amount paid earlier, if any
On or before 15 Mar 2018 100% of total tax liability Total Rs 1,72,500 including amount paid earlier, if any

That’s the reason, your employers, whether fauji or corporate, deduct your tax every month from your salary so as to keep it very simple and not to cause undue sudden financial burden on you. Thus, if your tax is being deducted as above and you have no other income, there’s no additional advance tax to be paid by you.

However, while calculating advance tax, people generally forget the income generated from rent, interests received from FDs (bank FDs, company FDs), regular pay outs from PO MIS (Post Office Monthly Income Scheme) or SCSS (Senior Citizen Savings Scheme), interest received from builders or money lent out etc. Thus insufficient tax gets paid which results in an interest penalty later.

 

 Who has to pay Advance Tax?

 Following categories of people have to pay advance tax or additional advance tax:-

  1. Salaried people whose employer does not deduct full quantum of advance tax as due.
  2. Salaried people whose employer deducts correct advance tax every month but they have income other than salary, like House Rent, interest from FDs, HRA, etc where proper advance tax deduction is their own responsibility.
  3. Those receiving pension but their bank deducts only 10% advance tax (TDS) on pension while they themselves may be in a higher tax bracket.
  4. People working as consultants to companies and no/less advance tax is being deducted by the company.

 

What is the penalty if Advance Tax is not paid, if due?

 Advance tax has to be paid by people whose total tax liability for a year exceeds Rs 10,000. If advance tax due, as per the table above, is not paid in time, simple interest of 1% per month (or part thereof) is payable under various sub-sections of Income Tax Section 234. Thus, if no advance tax is paid, at the time of filing the ITR (Income Tax Return), not only a large amount of tax due has to be paid but also the interest that would’ve built up due to non-payment of advance tax. If advance tax is paid in due time, the penalty interest is avoided as also the tax due is comfortably spaced out over the year, avoiding the sudden burden of paying a large amount of Income Tax.

 

Please remember that the First advance tax instalment of 15% of total tax for FY 2017-18 is due on 15th June 2017.

For more information, feel free to reach us on, contactus@humfauji.in or call + 011 – 4240 2032, 40545977, 49036836 or

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