Category: Blog

12 Aug 2018

Writing of Will and A sample format by Hum Fauji Initiatives

We have amended the format of Will which we had been sending to you and to our Financial Planning clients. We have made it in a word format so that you can edit it as you deem fit to suit your requirements. Also, we neither have, nor intend to have a copyright to this format – hence, you can freely distribute this format to anybody whom you wish to benefit. The format should largely meet the requirements of most of the families and may not require any major changes in most cases.

Please remember that there is no fixed format of a Will and it can be written in a manner that you find best suited to you. However, there are certain guiding points which you may find useful while preparing this important document:-

 

  1. You need to be at least 21 years old to write a Will. Do use the title ‘Last Will And Testament Of (state your name here)’ to make it clear that the document is your Will.
  2. State your full name, current address, and state that you are of sound mental state and under no duress from anyone to make the Will. Also name an Executor, a person who will carry through the tenets of the Will. You can name your spouse or the main beneficiary. If you are nominating an outside person to be the executor of your will, you must ask their permission first. If you have minor children, you must also indicate a guardian for them in your absence.
  3. Your Will should be Simple, Precise and Clear. Otherwise there may be problems for the legal heirs. It is always better to take the advice of a trusted advocate when writing your will.
  4. A Will must always be dated. If more than one Will is made then the one having the latest date will nullify all other Wills.
  5. It is better to make a Will at a younger age. As and when events or changes in the family necessitate changes the Will can be changed.
  6. A Will can be hand-written or typed out. No stamp paper is necessary. You can write a Will on a simple A4 piece of paper, sign and date it with witnesses and keep it in a secure location. It is often recommended to write your Will in your own handwriting as this can be verified later if there are any doubts raised by relatives.
  7. Each page of the Will should be serially numbered and signed by the Testator (that is you) and the Witnesses. This is to prevent the Will being substituted, replaced, or pages being inserted by people intending to commit fraud. At the end of the Will you (the Testator) should indicate the total number of pages in the Will. Corrections if any should be countersigned.
  8. If there are too many changes in the Will, it is better to prepare an entirely new Will rather than making modifications to an old Will.
  9. It is not compulsory for one to register a Will with the Registering Authority, but in case any property or asset is given to any charitable organization, then registration should be done.
  10. A Will becomes operative only after the demise of the person making the Will i.e. the Testator. There is no restriction in the way you can deal with any assets even after making a Will.
  11. If possible, have the two witnesses be a doctor and a lawyer. A doctor signing a will, won’t raise any question of you, being of unsound mind. The lawyer, will vet the will and make sure you don’t make stupid mistakes at the time of writing and signing it.
  12. The attesting witness and his or her spouse should not be a beneficiary under the terms of your Will. This might create vested interests and sometimes make your will invalid. Also, make sure the witnesses are younger than you and not very old as your will might be in effect for several years! And you want them to be present in this world
  13. Write your will on good quality thick white paper so it doesn’t get spoiled over a period of time. It should be stored in a plastic envelope in full size, without folds.
  14. Note that you should keep just one more copy of will and stored separately from the original will. The will must be stored very safely in your bank, in safe deposit box. You must also inform your next of kin, as to where you have stored your will. Do not make many copies of your will.
  15. In case of Hindus, it should be clearly stated if the property is inherited or not, because it makes a huge difference, as no ancestral property can be assigned to any person through a will. All rights on inherited property are acquired by birth. So if you inherited a property from your Father, you cannot say in a will, that you want to assign it to person X only! It will go to all your legal heirs as it is “Inherited”
  16. The value of assets often fluctuates, so it is better to mention how much each beneficiary will receive, in percentage terms rather than absolute numbers. Unless it is pure cash.

Claim the free sample of will here.

02 Jul 2018

Are you being over-charged by Financial Advisors like Us?

There have recently been many advertisements promoting ‘direct’ plans of mutual funds, giving out your ‘losses’ if you invest in regular plans of mutual funds as opposed to direct plans. Some officers have discussed it with us since they’re confused as to what is the truth. We would like to clarify the air about it.

First, we found that not all of those calculations put out in these advertisements are correct – most are highly exaggerated. The truth is that Direct plans will always be cheaper than regular plans simply because there is no Advisor fee built into it.  But we do want to tell you why direct plans may not be as rosy as these advertisements make it seem.

What is a Regular and a Direct plan in mutual funds?

In Direct Plans, you buy directly from the mutual fund company. Hence, you select the funds yourself, balance the portfolio, match it as per your future requirements so that money is available when you want in the right quantity, do the transactions, maintain the portfolio logs including of the SIPs you are doing, monitor the funds, identify where all changes are required and when, and then carry out those changes.

In Regular Plans, all these functions are done by your Advisor. Obviously, all these cost a fair bit of money and the Advisors have to be paid that cost for their time, effort, and knowledge. Hence Regular plans have that small fee part built-in which the mutual company charges you and then pays to the Advisory Company like us. But is that all that Advisors like us do? Let’s see.

How actually do financial advisory companies like Us help you

Most people underestimate the services that advisors provide. Here we give you a lowdown on what a ‘good advisor’ can do for you – please note that a relationship manager of a bank is not the same as an advisor, leave alone a ‘good advisor’

    1. Help you understand, formulate and quantify your financial goals: When you have multiple financial goals in life, you might get lost trying to identify and quantify each of the goals. However, a financial planner does this on a daily basis and makes the process much easier for you.
    2. Help you decide on the right asset allocation and the right funds: Do-it-yourself (DIY) investors in Direct Funds usually look at the highest rated funds or pick the funds with the highest 1-year returns. Fluke short term returns phenomenon, or how stable is the fund, fund manager and the fund house doesn’t show up there. Off-the-cuff funds like this may be better funds by virtue of being highly rated CURRENTLY but are they really suited to your needs? Of course, we’re not talking factoring in the scepticism about the rating schemes here. A financial advisor not only understands your requirements but also understands fund characteristics. He not only selects the fund best for you, but, more importantly, selects the fund most suited to your future needs. There is a marked difference in this subtlety. He saves you from driving a car by looking at the rear windshield only.
    3. Help you distinguish between funds: A DIY investor who looked at chart toppers and bought funds in the past couple of years, would most likely have picked mid and small-cap funds. Such an investor would have been in for a rude shock in 2018, seeing all the funds fall together like nine-pins since they all were essentially of the same breed. This is exactly the kind of investment decision that an investor can make if they think picking a fund from a rating website is easy.Let us take an example. Many DIY investors pick BOI AXA Credit Risk fund amongst debt funds because it shows up on websites as giving very high returns. Little do they know that this fund, on top of being a credit risk fund, has close to 20% of its investments in unrated securities. To add to that, it also has a very concentrated exposure to some of its top risky holdings. This understanding of the underlying portfolio, risks and quality is not something that simply comes in packaged portfolios of AMCs or on the rating websites. And this is just one of the examples.
    4. Help you review and rebalance: Goal planning, allocation and choosing funds is just the beginning. Real wealth building lies in periodic review of the fund performance, through scientific, quantified analysis by an exclusive research team. That is not something any direct platform can offer on a sustained basis. They likely do it one time to recommend funds initially and offer them like commodities. That, to our mind, is neither advisory nor research, and can hurt you badly in the long run, as we keep discovering every day from new investors who come to us with their current portfolios.
    5.  Help you tide through volatile markets: It is said that investments are actually done in the mind, and that all investments are ultimately emotional decisions. When value of investments tend to show a downturn, direct plan investors tend to panic because they have nobody to hold their hand, and they tend to withdraw their money or stop their SIPs. These are exactly the type of counter-intuitive decisions that hurt your portfolios. Advisors help you understand why the markets are falling and why there may not be any reason to panic. A correction offers a good opportunity to invest more money. And advisor helps you understand this and use this opportunity to help you stay on or buy more at lower costs.
    6. Help you devise a withdrawal strategy: Good advisors don’t simply tell you when and where to invest. They also tell you how and when to withdraw the money, when you need it. Whether it is about any emergency need or shifting money to safer avenues, closer to your goal, a good advisor will help strategize those.
    7. Help manage monthly income after retirement: We help people understand how much additional money do they need apart from their pension (if any), how to generate income from their corpus in tax-efficient and safe manner but also help them grow their corpus with limited risks.
    8. Your financial journey: A financial advisor doesn’t just look at your bank balance and tell you where to invest the money. A financial planner can hand-hold you through your financial journey. They can give you a holistic view of your requirements and plan your investment, insurance, and income streams.

Just think about this…

When it comes to investing, investors get fixated on the costs. In other areas of life, it is easy for people to understand the need for paying experts like Doctor, CA, Lawyer etc to get their job done. But financial planning is something people think they can do on their own. This view may have been correct when bank deposits and NSCs were the only options. But with today’s financial markets, that is not the case. And an investor could benefit a lot by talking to their financial advisors about their future life planning needs.

Yes, when it comes to the cost of such advice, you do have an option of paying a good Registered Investment Advisor (RIA) a fee for the service. But to think such a fee will be lower than the present distribution fee is a bit of a stretch. If platforms do offer you such low-fee services, please think a bit about how many banks and how many products like debit cards or credit cards or demat accounts or any ‘free transactions’ were offered for free initially and then charged later. A simple math will tell you that it is yet another marketing gimmick.

For most of these ‘free’ or Rs. 100 direct platforms, their revenue will come from cross-selling higher-cost products such as insurance or equity trading. To them, direct plan investors are ‘conduits’ to generate higher fee from other products. In other words, you think you are saving Rs 10 today, only to be made to pay Rs 100 in a higher-cost product cross-sold later. That’s why a few of the officers who had moved on to direct plans sometime earlier, are now back with us!

Please remember – ‘It does not matter how fast you are going, if you’re in the wrong Train!’

If you are an experienced investor, confident that it is your own game, you may choose to go direct. But for the majority rest, it is about paying ‘all-inclusive’ fee (for advisory and investment) with regular plans or paying a fair price separately to a Registered Investment Advisor. There is nothing in-between in any viable advisory service.

(Source: Adapted largely from an article by FundsIndia.com)

26 Jun 2018
financial planning for your earning child

Financial Planning for your earning child?

‘I hope my son doesn’t manage his money like I did when I was his age!’‘

Don’t think my daughter knows that there’s life beyond 20s too…she at least spends so and has saved maybe Rs 10,000 in the past four years that she’s been working.’

‘I’ve given up Sanjeev. My kids have categorically told me not to talk to them about saving anything from their salary. When they need any money, I’m their ATM…and mind you, they earn almost as much as me, with no responsibilities.’

While we’re not going to dwell on the parenting aspects of your life, we can definitely give you some idea of how your children should go about their financial lives and end up much better than where they seem to be headed now. Ease it in gently into your children and we’ve seen some good results come in even from ‘hopelessly-given-up’ parents!!

A few points before we go ahead with Financial Planning of our Earning Child:

  • If your children are working in the corporate, they’ll not get the fauji type life insurance, life-long medical cover, DSOPF and very importantly, the pension. Each and everyone of these will have to be carefully planned and meticulously executed.
  • If they are in the armed forces, they will have some benefits but other bigger financial requirements will have to be planned for by them, which most of us didn’t do in our time!
  • Long term thinking will be the key. If a Harley Davidson, Europe vacation or expensive guitar is being funded by dipping into the retirement corpus, the retirement will definitely not be a ‘golden period’ of life.

There are basically five things that your child in the corporate needs to take care of for life-long financial independence. For children in the armed forces, skip out Points 1 and 2 below. It is also very important that different financial baskets are made for all the important requirements and are not violated. Let’s look at them then:-

Life Insurance

Before even a single investment is done, protection umbrella over those who are financially dependent on your earning son or daughter is a must. Only and only Term Insurance Plan should be taken. A cover of about Rs 1 Crore should be the starting point, which will cost just about Rs 8000 per annum for a 40 years’ policy for a 25 year old male son, even lesser for a daughter. But it should be taken only if the person has anybody else financially dependent on him/her. Eg, if not yet married, no life insurance cover is required as yet.

Medical Insurance.

Another must for your son/daughter. Please remember that if the child’s monthly basic income is more than Rs 9000, the child is not dependent on you irrespective of age or marital status. A no-frills basic Medical Insurance cover of Rs 5 Lakh is adequate for most children. If the son/daughter is married, generally a Family Floater cover is more advantageous and Rs 10 Lakh of cover is adequate. Factor in the cover available from the employer too if a long term employment is visualised with the current employer.

Provident Fund.

PFs, including DSOPF, are meant for imparting financial security in one’s life against job loss or retirement. Most of the employers provide EPF (Employee Provident Fund – rate of interest 8.65% currently) where both, the employee and employer contribute. In any case, a PPF (Public Provident Fund – rate of interest 7.6% currently) account should be opened and kept alive by depositing the minimum Rs 500 per annum. When EPF is there, prefer EPF over PPF due to higher rate. When not, PPF can be progressed. Both have a ceiling of total Rs 1.5 Lakhs contribution per annum and double up as 80C tax saving avenue.

Retirement Corpus.

This is the biggest financial bugbear in the civilian world. Taking life time to be 85 years and working time to be 50-60 years of age, at least 25 years of good life needs to be lived after retirement. Considering their faster burn out, current generation is dreaming of retirement at even 40 years of age! Taking out last 10 years as sedentary years, at least 15 years of active life has to be lived without any income coming in. Two good options are there – National Pension Scheme (NPS) or Retirement Mutual Funds. Both have their positives and negatives. NPS has a some additional tax benefits, and annual recurring charges are very less. MFs have more flexibility, many more options and withdrawals are much easier. Totally avoid pension plans given by Insurance companies.

Investments.

This is what one saves for meeting life’s various financial goals, emergencies and for maintaining a good lifestyle. At a young age, equity or stock market investing is a must and no better avenue for that than Equity Mutual Funds (MF). Similarly, Debt MFs provide a better alternative for safe investments over bank FDs, RDs and the likes. Thus overall, the MF bouquet of Equity and Debt MFs can fulfil the entire investment needs for long as also short investing horizon in a better manner in terms of returns, tax-efficiency, flexibility of investment and withdrawal, and time period than any other investing avenue.

80C Tax Saving needs can be easily met by the investment combination of EPF/PPF/DSOPF and MFs.

In a nut shell:

  • Term Insurance for life insurance needs.
  • Medical Insurance if required.
  • DSOPF/EPF/PPF in that order of priority for PF requirements.
  • Saving for Retirement corpus is a probably the most critical of all investing, if will not have a pension.
  • Mutual Funds are the best vehicle for investments.

Do you need help in managing your child finances, or for your financial planning of your earning child write to us and we will help you for sure.

Micro-learning Initiative by Hum Fauji