Invest smartly, Secure your Future

 

Everyone works towards building a financially secure future, but inflation can become a big hurdle. With the cost of education, health-care, real estate and travel increasing constantly, there is always a risk of insufficient finances unless the return on your savings is higher than the increase in cost.

Why equity products?

Depending on one's financial needs-the quantum and time frame-and the risk appetite, one needs to allocate savings to different assets such as fixed deposits, liquid, debt and bond funds or mutual funds, and equity mutual funds, so that a portion of risk-low returns savings are ear-marked for the immediate financial needs and the rest are allowed to grow in equity products over the years. Equity as an asset class has generated higher real return over a long period. It is important to stay invested patiently for long-term to generate wealth and not get perturbed by the volatility in the short-term during which the equity products typically see a temporary fall in their overall performance.

How should one take exposure to equity?

Investing directly in stocks can seem exciting, but it is extremely risky. Mutual funds provide a methodical, fundamental, and research-based approach to investing. A team of fund managers and analysts study the companies in detail by analysing not only the financial numbers, but also, by meeting several stakeholders, competitors, and regulators. Also, since mutual funds work on the principle of pooled investment, the investor owns a diversified portfolio of companies at a very minimal cost.

What are the different types of equity products?

Equity products are classified depending on the investment universe that they commit to, for example, there are products in large-cap, mid-cap and small or micro-cap companies or under a specific theme like infrastructure, agriculture, lifestyle, multinational companies, or in a particular sector such as banking, auto, or pharmacy. Usually the risk is positively correlated to the return, which means higher the risk, higher is the return expected. It is advisable to invest 50 per cent of one's equity allocation in large-cap diversified funds, which are relatively less volatile. Thereafter, investors can choose to invest 20 per cent to 25 per cent in mid- and small-cap funds, 10 per cent to 15 per cent in thematic funds, and 5 per cent to 10 per cent in sector funds. Sector funds carry the highest risk as their investment universe is restricted. Further, there are products categorised as balanced funds that combine equity with other asset classes.

Is there a specific time when you should invest in equity?

Are you allocating enough funds to equity to secure your future is the question you should be asking. To receive real returns over the long-term, investing in equity products on a regular basis and in a disciplined manner is crucial. Market fluctuations don't matter much here. According to a study of the past equity market data, excess return over 15 to 20 years was less than one per cent per annum, if we assume that the investor invested in regular tranches in BSE sensex on the days of correction. There are smart investors who understand the importance of regular SIP (systematic investment plans) and they earmark these savings for specific financial needs too.

How to increase chances of returns from equity?

Besides investing regularly in equity products, you can invest aggressively when the markets are bearish and participants are pessimistic about the short-term outlook. In practice, this is tough as the immediate on equity products can be subdued, and lower than returns on debt funds and fixed deposits. One needs to invest patiently, as the returns can be far superior over a longer period.

Think beyond note ban : A roadmap to manage your personal finance

The government's move to abolish high-denomination notes (HDN) has increased the probability of a cut in interest rates in the next few months as the move will increase liquidity in markets and ease the pressure on government borrowings. It is estimated that banks so far have received nearly Rs 2 lakh crore of deposits after the government banned old high-denomination notes and it is expected that a large of number of deposits would get added in the coming months. This would strengthen the banking system further. ETIG provides a low-down on how retail investors can invest in different asset classes after the fall in benchmark interest rates.

Loans:

Experts foresee interest rate cut by 75 basis points in the next 12 months.
Every 1% rate reduction on home loans of Rs 10 lakh (20-year tenure) reduces EMI by Rs 1,000.
Home loans constitute nearly 50-60% of the total retail loans of the banks.
Cost of acquisition of cars may drop with lower interest rates; almost 80-85% are sold on finance.
Personal loans constituted nearly 22% of the total loans in September 2016.
Housing, auto and credit card loans grew by double-digit in September 2016.

Bond/Mutual Funds:

Bonds with higher duration to benefit most from lower interest rates.
If the rate falls by 1%, investors may have capital appreciation of 5-6% for 10-year bond, while 9-10% for 20-year bond.

Equities:

Bond yields are inversely correlated to P/E.
A 10-basis points change in the risk-free rate in India may increase the fair value of equities by 3-5%.

Interest Rates & Deposits:

Low-cost deposit will move into the banking system due to cash demonetisation.
Higher deposit and weak credit growth would prompt banks to go for rate cuts.
Higher dividend from RBI may reduce fiscal deficit for the government.
Lower government borrowings may lead to increase in corporate lending. 

Banks:

Banks will benefit from higher CASA growth as $190 billion cash gets deposited with them.
PSU banks will be key beneficiary with market share of 76% of the total saving deposit.
Banks with higher CASA ratio will benefit more as their cost of funds drops. 

**Source: Economic Times Wealth

Don't Put Off Planning for Retirement - Start Saving Now

Ask individuals about their retirement plans and they’ll say they want to travel to different countries, spend leisure time at a quaint beach house, grow vegetables at their farm etc. But how many of them are working towards it, i.e. saving up for retirement? Not many and this was recently demonstrated in the India 2015 Retirement Readiness Report released by Aegon Life Insurance. It revealed that employees in India are on track to attain only 71% of the earnings they will require during retirement. Furthermore, it also mentioned that only 51% are consistently saving for this phase.

This is an alarming indication and highlights the need for Indians to start saving for retirement before it’s too late. If we take inflation into account, it has been staying close to 6.2% to 6.5% per annum. It is less likely to drop considering the nation’s economic growth. Hence, if a 40-year-old man is spending 50,000 per month today, he would need a lot more money to sustain the same lifestyle during retirement.

Another reason which emphasizes the need to save for retirement is the increase in lifespan. The Union Ministry of Health and Family Welfare has stated that life expectancy in India is 67.3 years for men and 69.6 years for women. Hence, the earlier you start keeping funds aside, the more content and hassle-free you’ll be during the long retirement phase.

Even though individuals are aware about the importance of saving for their old age, they commit major mistakes which can highly affect their future planning. Most of them have a definite preference for safe assets such as fixed deposits, gold or real estate. These may produce good returns but they are not sufficient to form an adequate long-term retirement corpus.

To prevent a retirement crisis, it’s best to consult a financial advisor who can guide investors through every step and help them plan correctly for their retirement goals. You may not want to think about it right now since this phase is years away, but take a judicious decision and begin saving from today in order to experience a happy retirement just the way you wanted it to be.

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Why you Should Shift your Money from Fixed Deposits to Debt Funds.

Fixed deposits have always been regarded as a safe financial instrument by people since they ensure security, provide fixed returns and are comparatively risk-free. However, if one looks at the current tax slabs, fixed deposits may not be as profitable considering the amount of tax incurred on them. Hence, financial experts strongly recommend parking your money in debt funds instead which are essentially a mix of corporate bonds, treasury bills, mutual funds, government securities etc. Here’s why you should give investing in debt funds a serious thought:

1. No worry about capital safety

If you compare credit ratings of fixed deposits and debt funds, you’ll observe that there’s not much difference in the rankings. These are released by independent rating firms which include CRISIL, CARE, ICRA etc. While fixed deposits have a rating of AAA signifying very high capital safety, debt funds have a score of AA implying high degree of money security.

2. Debt funds guarantee superior post-tax returns

Income received from fixed deposits is termed as interest whereas revenue earned from debt funds is called as dividend. Both of them are categorised differently in terms of taxation. For fixed deposits, tax liability is based on the individual’s present tax slab regardless of the duration of the FD.

Debt funds on the other hand attract virtually zero taxation if held for more than 3 years. For the first year, tax liability for both the instruments is the same. But for fixed deposit investors, taxes need to be paid on interest accumulated every year. Therefore, debt funds are more tax-friendly as opposed to FDs. Moreover, individuals who have investment goals for 3 years or more must certainly opt for debt funds and take advantage of the taxation benefit.

3. Debt funds offer higher liquidity and easy withdrawal

Fixed deposits have a set duration and usually offer low liquidity until the deposit period ends. Most debt funds have high liquidity if the minimum holding time has elapsed and conditional on lock-in period as stated. Although some banks let individuals break the FD in part, many of them will ask you to withdraw the entire amount in addition to paying a penalty.

When it comes to debt funds, individuals can enjoy complete liquidity for their investments. Any amount of funds can be withdrawn at any point of time from the total debt fund value. A small sum in the form of exit load might be levied if money is taken out in less than a year.

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Top 4 Reasons You Should Start Investing Right Now

                         

Individuals who have just started working spend their entire salary on parties, entertainment, holidays and designer merchandise etc. They seldom save and in case of an emergency or illness borrow money from friends or relatives. Such habits can certainly spell disaster in future and the best way to change it is to start investing. We list the top reasons how investments can transform you for good:

Makes you aware of financial goals:
Different people have varied goals depending on their personal requirements. These aims can’t be attained by simply snapping your fingers. Once you start investing, your monetary goals start taking form and you know exactly how to realize them with the right financial vehicles.

Inculcate discipline:
A vital aspect which the practice of investing teaches every person is discipline. For example, if you have started a systematic investment plan (SIP) on a monthly basis, you know that you have to keep aside a certain amount of money every month. Such financial plans ensure that you don’t use the money anywhere else and thereby develop effective self-control.

Provide a road-map to realize your goals:
Let’s say you have just started working and aim to buy a car in the next 4 years. The car is priced at 3 lakhs and your current monthly income is Rs.20,000 out of which you save Rs.5000. Merely keeping the money aside won’t help you achieve your goal of buying a car. Investments are ideal tools which help you determine the best way to attain your financial objectives and how to go about doing it.

Taking the example of an SIP, if you invest these savings in a mutual fund plan at 12% rate of return for the next 4 years, you will get approximately Rs.3,10,000 at the end of the term thereby making your car dream come true.

Hinders you from splurging:
When you start investing, you will forego buying an expensive pair of leather boots for Rs.15,000 and invest the same money in buying shares which will reap rich returns in the long-term. You make optimum use of your money and avoid spending too much or purchasing things you don’t really need.

Investing is a process which should begin the day you start earning. Don’t wait till you accumulate a large amount of money. You can even begin with small amounts and watch them prosper. Saving is no doubt imperative but it is the habit of investments which has the potential to transform your hard-earned savings into lucrative financial assets for life.

Happy Investing !! 

Fears Which Keep People Away From Investing !!

Majority of individuals place their savings in either a savings account, or the conventional fixed deposit which generates good interest. However, interest rates keep fluctuating and they may not give great returns all the time. One of the ideal ways to grow your wealth is to invest. Though many people wish to invest and multiply their money but there are certain fears which stop them from doing so. They include:

1. Fear of not having adequate information:
Many people don’t have sufficient knowledge about the various financial vehicles and their respective categories, working of the stock market, creating a balanced portfolio etc. As a result, they are scared that they might choose the wrong investment and suffer losses. This information gap keeps them away from investing.

2. Fear of market volatility:
Indian financial markets have always experienced several downfalls and rises. Sudden drop in the Sensex due to economic, political causes can lead to losses amounting to crores and wreak havoc in an individual’s portfolio; a major factor which refrains people from putting their money in market-related investments.

3. Fear of not having enough money:
There is a common misconception that if one wants to invest, a big amount of money is required. Individuals fear that they don’t have adequate money and believe that only investing a large sum can yield profitable returns.
 

4. Fear of being conned:
Recent chit fund/equity scams which have shocked the Indian markets have put various doubts in the minds of investors. Instead of putting money in an investment scheme, they prefer the safe fixed deposits offered by banks where their money is safe and ensures almost zero risk of losing money.

Placing your money in viable investments is a must if you want to achieve your monetary aims. Take the advice of a financial advisor who can help you overcome these fears and help you invest your hard-earned money at the right time and in the right financial instrument.

4 Smart Tips To Utilize Your Incremental Income !!

All employees look forward to the appraisal period during their professional tenure since it indicates a rise in their salary. However, most of them utilize this additional income the moment they receive it which is a huge mistake. Instead of spending your appraisal income by impulse on things you don’t require, you should build your wealth with this extra cash. Listed below are some successful ways worth a try:

1. Take a step further in achieving your goals:

When you get an appraisal, one of the first things you should seriously contemplate is filling the gaps in your investment portfolio; invest in a profitable new vehicle or put more money in your existing investments. For example, if you have an SIP where you invest Rs.3000 every month, you can increase it based on the surplus income. Moreover, you can open a recurring deposit account and start saving for retirement.

2. Learn a new skill/course:

Jobs are getting fiercely competitive and it’s vital for professionals to be well-read in their chosen field. If there’s an executive training program which would boost your career but the fees are high, you can make use of the appraisal amount and enroll for it.

3. Build a fund for emergencies:

Unfortunate events can occur anytime and you may not be prepared for it financially. The additional income can be saved every month to create a corpus for emergencies such as hospitalization due to accident or chronic illness, loss of job etc. Deposit the fund in a savings account directly so that you are not tempted to spend it.

4. Seek advice of a financial advisor:

If you are not sure about how to make the most of your appraisal amount, it’s best to consult a financial expert who can guide you in the right direction. These professionals know exactly where you should put the surplus money and how you can gain maximum benefit.