Financial Cocktail Samosas
Best Monthly Income Scheme for You
- Awareness of your needs and requirements – do you really need that extra money?
- Liberty to withdraw extra chunk at the time of any emergency that could come unannounced.
- Inflation which always eat up your savings and increases your expenses, leading to increase of this regular monthly requirement periodically.
Heavy taxation is a major negative factor for above investments. In SCSS and PO MIS, the small allowable amounts do not generate any meaningful regular income.
A better alternative could be Systematic Withdrawal Plan (SWP) offered by mutual funds (MFs). SWP is the opposite of SIP (Systematic Investment Plan). In SWPs, you can decide the frequency of income (monthly, quarterly, half-yearly or yearly), how much do you want and you can start, pause or stop it whenever you want. For investment too, you can choose as safe a debt fund you want, or go for volatility by choosing equity funds, or a combination of both through hybrid funds. The taxation is very benign and one could save up to 60-80% tax compared to conventional options given in the table above.
(Contributed by Priya Goel, Financial Planner, Team Sukhoi, Hum Fauji Initiatives)
Is It a Good Time to Prepay Your Home Loan?
Do you have a home loan on your head? Are you confused about whether to pay off the loan in part or full or do nothing?
RBI has recently increased the interest rates and if you have a floating interest rate loan running, your EMIs are bound to increase. Therefore, prepaying a part of your home loan can be a good idea especially if you are at the early stage of the loan as interest rates plays a major role in deciding your EMI.
But before prepaying the loan fully or partially, don’t forget to consider the following points:-
- Don’t Disturb your emergency corpus for prepaying your home loan as it has been created for a rainy day or for unforeseen circumstances.
- Choose wisely between loan tenure and EMI reduction When interest rate rises, generally you have two options – increase the EMI amount if you want to maintain the same tenure, or increase the loan tenure if you want to maintain the same EMIs (the default option). Choose wisely because the former may burden your monthly budget while the latter would increase the overall interest that you pay.
- Taxation. Before making a decision, keep in mind the taxation benefit that you get on both the principal and interest payments of the loan.
- Investments planned for your Financial Goals should not be altered or get affected due to your home loan decision. Meeting your future financial requirements is the most important function of money and rising interest rates should not derail them.
- Psychological Factor. Consider how much of a psychological burden a heavier loan would place on you or your family. Eg, at the time of retirement, almost everybody wants to be loan-free as you don’t want to spend your golden years carrying the burden of large EMIs.
Your decision to pre-pay or fully repay a loan should be arrived at after considering each of the above factors carefully and completely.
(Contributed by Yogesh Gola, Financial Planner, Team Vikrant, Hum Fauji Initiatives)
Simple Thumb Rules for Your Money Management
Here are some smart guidelines that can approximately tell you how to manage your money. But one word of caution – while these thumb rules give you general sense, there is much more to managing your money – use them only as guidelines and nothing more.
- Rule of 72 – When will my money double? We all want our money to double and this rule lets you know the approximate time it will take to do so. Let’s suppose you have invested Rs 1 lakh in a product that provides you a rate of return of 6%. If you divide 72 this number 6, you arrive at 12. That means, your Rs 1 lakh will become Rs 2 lakh in 12 years. If equity investments are likely to give you 12% in the long run of 5 years or more, then your money will double in 72 ÷ 12 = 6 years. Similarly, Rules of 114 and 144 can be applied to know when will your money triple and quadruple respectively.
- Rule of 70 – How fast will my money lose its value? We all know what Inflation (महंगाई) can do to the ‘real’ value (purchasing power) of our money. This is an excellent rule that helps you determine what your current wealth will be valued few years down the line due to inflation’s eroding effects. To calculate this, divide 70 by the current inflation rate. The number that you arrive is the number of years your wealth will be worth half of what it is today. For example, let’s suppose you have Rs 50 lakh and the current inflation rate is 6.7%. So going by the rule of 70, your Rs 50 lakh will be worth half – Rs 25 lakhs – in 10.5 years [70 ÷ 6.7 = 10.5].
- Rule of 100 – How much Equity exposure should I have? The 100 minus age rule is a great way to determine one’s asset allocation – equity and debt. Subtract your age from 100, and the number that you arrive at is the percentage at which you should invest in equities. The rest should be invested in debt. For example, a 25-year-old should have 100 – 25 = 75% in equity (stock markets like Equity mutual funds) and rest 25% in debt (safety). But please apply this rule very carefully – your risk profile, future requirements and current market conditions could have a overbearing effect on this rule.
(Contributed by Sweta Kumari, Associate Financial Planner, Team Arjun, Hum Fauji Initiatives)
Safeguarding Property Rights of Senior Citizens
We have often seen parents transferring their property rights to their children or other kith and kin to convey their love and blind faith in them, to avoid animosity amongst them while they are alive or to prevent inheritance disputes after their demise. Consequently, they become dependent on them willingly even for their basic amenities and needs. It is not uncommon for children to stop looking after their parents and sometimes go to the extremes of not providing even decent living to them or even ill-treating them.
Most such senior citizens are unaware of their legal rights, that they can reclaim the property transferred to their children and to seek removal or eviction of their children or relatives from their property under the ‘Maintenance and Welfare of Parents & Senior Citizens Act 2007’. The provisions of this act are wide-sweeping in the spirit of ‘The obligation of the children or relative, as the case may be, to maintain a senior citizen extends to the needs of such citizen so that senior citizen may lead a normal life’. It also has provisions for a maintenance allowance to be given by the children or specified relative in case the senior citizen is unable to maintain himself/herself, and this provision is enforceable by a Maintenance Tribunal set up for the purpose.
Senior citizens who are planning on gifting property to their child should preferably consider giving it in their Will so that the transfer takes place after their death. but if they are, for some reason, wish to do it earlier, should consider including an express condition in the gift/transfer deed that the child will maintain them till they are alive. If the child violates this condition, then the parent can approach the Maintenance Tribunal to declare the gift void and return the property back to the senior citizen.
Although this Senior Citizens Act does not specifically mention eviction/removal from property, Indian courts, including the Supreme Court, have allowed eviction/removal of children or relatives from property in the past in cases of harassment or non-maintenance. Courts have also ordered the removal of children from their parents’ homes when children have harassed their parents to transfer property to them on the ground that they are the legal heirs in future.
(Contributed By Manish Kumar, Relationship Manager, Team Vikrant, Hum Fauji Initiatives)
Digging your Way Out of Uncontrollable Debt
Taking loans (कर्ज़) to fulfill needs and desire is a part of western culture but now it become common in India as well. Due to its widespread proliferation, people are gradually forgetting the difference between good debt and bad debt. They consume goods and services which are not really required for the sake of ‘maintaining a status’ and keeping up with their society peers. Obviously, it cannot last for long. Sooner than later comes the time to finally clean up your balance sheet by paying off whatever is due and starting to live below your means.
But understand that such an act entails more than just paying off credit cards. It entails altering your spending pattern, learning how to budget, tracking your expenses, prioritizing debts, and setting aside funds for emergencies and retirement.
- Budgeting – Creating a regular budget and following it can no longer be avoided. It immensely helps individuals to notice their expenditure behaviours and eliminate those expenses which are entirely avoidable.
- Follow the Hierarchy – All debts are not created equal. You’ll need to create a debt hierarchy and a suitable plan of attack. We advise focusing on the high-interest debt first, and then liquidate the low-interest ones.
- Get the Financial Doctor’s Help – If you think that your debt disease is serious, to the extent of being incurable, look for an advisor. He will assist you in resolving your issue, creating a realistic budget, and determining which debt-relief solution is right for you.
The above plan helps you come back to a normal life. Learn your lessons from it. Getting out of debt, saving for retirement and personal expenses, and staying out of future debt is the only way to build a solid financial future for yourself and your loved ones.
Watch out a recent Money Guru show on Good and Bad Debt, where our CEO Col Sanjeev Govila spoke about the considerations you must keep in mind while going for a loan process.
(Contributed by Aman Goyal, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)
We All Need Somebody out there to Listen to us and Understand us
We all have hundreds and thousands of friends on social media like Facebook and Instagram but we still look for happiness. Covid-19 gave a huge fillip to the digital businesses. Amazon Prime and Netflix became a substitute for cinema halls. Amazon and Flipkart became everybody’s choice for all kinds of shopping. Byju’s, Vedantu, Practo, Paytm etc flourished in their respective domains.
Everybody thought that we were back to normal with new substitutes with a changed and improved life.
But the fact remains the same that we all are social animals and there can never be any alternative to personal physical connects. The algorithm based robotic lifestyle could provide temporary ease or happiness but ultimately all of us long for physical and voice contact with real human beings. A handshake, ‘jaadoo ki jhappi’ by the bestie, a pat on the back will never have any substitute.
Relationships are the core of our life and trust is their foundation.
Somebody might think that relationships are restricted to friends and family members only. But the fact is that in each and every transaction, a relationship is built between the parties involved. Subsequent transactions are more a result of relationships created rather than just a product or service requirement. It could be a newspaper vendor, vegetable vendor, doctor, CA, or a financial advisor.
And these relationships based on trust and personal connect will continue to exist forever irrespective of tech advancements.
(Contributed by Jatin Uppal, Deputy Manager, Hum Fauji Initiatives)
The Seduction of Pessimism
Pessimism isn’t just more common than optimism. It also has a smarter sound. It’s more interesting intellectually and is given more consideration than optimism.
If you tell someone that everything will be wonderful, they will probably either ignore you or give a doubtful glance your way. You have their whole attention when you warn someone that they are in danger.
Often, pessimists extrapolate current trends without taking into consideration how markets respond.
So, at this point, what would be the wisest course of action as far as your investments and portfolio is concerned when there’s a huge pessimism around?
Firstly, Margin of safety – you may call it room for error or redundancy – is the only effective way to safely navigate a world that is governed by odds, not certainties.
Your portfolio needs to be diversified enough to withstand the kind of extreme short-term movements. Also, keep extra debt investments at roughly 5-10% of your total investments to give yourself the best chance to increase your wealth by anticipating market fluctuations.
The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.
Secondly, Compounding, which always requires time, drives growth. Single points of failure, which can occur in a matter of seconds, and loss of confidence, which can occur instantly, are what cause destruction.
Progress is slow, but setbacks and disasters happen quickly and impact fully. There are lots of overnight tragedies; there are rare overnight miracles.
Critically, you need to stay invested even when times look as bad as they did every year in the past. Investors should not think that they have to be either optimists or pessimists. Long-term success requires both, ie, to save like a pessimist and invest like an optimist.
(Contributed by Priya Goel, Financial Planner, Team Sukhoi, Hum Fauji Initiatives)
Looking to park your surplus money for a rainy day?
Do you have surplus money after meeting your emergency funds? Are you looking to park your money for the short term? Generally, most people prefer to keep their surplus money in traditional savings options, such as under their pillow or in a savings bank account over all others, and it may keep lying there for a long time.
Although, these options are convenient for day-to-day transactions but may not be the most efficient way to save surplus money as you get poor returns, if at all. Also, the real issue with traditional savings is inflation. A rise in inflation put a hole in purchasing power and thereby reduces the value of your such savings.
For parking your surplus money, shorter-duration debt funds such as liquid funds or ultra-short-term funds can be a good option for you. These funds are suitable to park the amount you have set aside to meet any emergency needs or any surplus money that you don’t need for few months or up to a year. These are highly liquid investments – when you require money, it gets credited to your bank account within 2-3 working days.
Here are some key features of these funds that you should know:
- These are open-ended debt funds without any lock-in period.
- The money is invested in money market instruments like a certificate of deposits, treasury bills, commercial papers, and short-term debt securities. These instruments have zero or low risk, offer fixed returns, and have a fixed maturity period.
- You can enter and exit from these funds anytime. The ultra-short term funds have no entry and exit loads, and liquid funds have exit load of up to one week only.
- You are likely to get higher returns than a Savings Account depending upon the prevailing interest rate scenario.
As we are going through an inflationary period, RBI would keep the interest rates high in order to curb inflation. It would act as a catalyst for the rise in returns of these debt funds. So, do not let your surplus money sit idle, let it reap the benefit of rising interest rates.
(Contributed by Yogesh Gola, Financial Planner, Team Vikrant, Hum Fauji Initiatives)
Marco- Economic Factors and Their Effect on Personal Finance
macroeconomic factors as below:
- Inflation – The level of inflation present in an economy has a massive impact on the financial planning process for individuals. When inflation increases, the costs of goods and services increase, and the entire budget goes for a toss. Therefore, it is important to invest in asset classes like equity that provide inflation-beaten returns.
- Business Cycle – Business cycles such as boom, recession, depression, etc also have a big impact on the way in which individuals plan their finances. Business cycles can affect us in numerous ways, from job-hunting to investing and understanding them is crucial for us. Knowing which assets especially stocks/sectors perform well in different phases of a business cycle can help an investor avoid certain risks and even grow the value of their portfolio in a contrary phase.
- Monetary Policy – When central banks raise interest, the cost of borrowing money increases as lenders increase the interest rates charged on loans as well as existing loans. It has also an effect on bonds, equities, real estate, commodities, and currencies. Thus, RBI’s Monetary Policy has a direct impact on your personal finance.
- Fiscal Policy – Fiscal policy is simply about how the government decides to spend money as well as set the tax rates/rules. When the government lowers income tax, citizens have more money to spend on goods and services. Hence, industries that make those goods and services boost the economy. On the contrary, when income tax is too high, citizens have less money in their pockets which reduces their buying power and slows down the economy.
Hence, macro factors have a huge impact on the micro. A good financial planner always ensures that macroeconomic factors are taken into account while preparing or making adjustments to your financial plan.
(Contributed by Sweta Kumari, Associate Financial Planner, Team Arjun, Hum Fauji Initiatives)November 4th, 2022