8 Things my Kids taught me about Money

Hemant Beniwal
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7
8 Things my Kids taught me about Money

As you know whatever new or different I perceive I feel like sharing with you all that too about money.

Being a financial planner it’s not only my profession but also my passion to tell my dear readers about all that we can do and think about money.

It may sound a cliché but it’s a bitter truth that for most “money is everything”. It is indispensable and irreplaceable. This thought became even more fervent when I heard my kids and their friends interacting.

8 Things my Kids taught me about Money

Read – 10 Lessons to Teach Your Kids about Money (INFOGRAPHICS)

Last Sunday while I was watching TV – my kids were playing a game with their friends called MONOPOLY, which is all about:

  1. Managing money or liquidity if I simplify,
  2. Investing at the right time and in the right direction,
  3. Credits and debits
  4. The rich is the one who has maximum land according to the rule of the game, I differ though
  5. Budgeting, strategizing and allocating capital wisely and with all possible precision.
  6. Buying and selling of property and asset management.
  7. Nurture relationships
  8. Take calculated risks and be courageous.
  9. Have a backup plan.

There is much more than I could see, so would take this as an opportunity to help you to understand what we can do to make our lives better and add value and quality to it.

8 things my Kids taught me about Money Click to Tweet

So let’s take a close look at a few interesting traits and qualities that we can learn from kids.

1. Start with enthusiasm and positivity

You all must have observed that kids are always over the top before they start any game. So if we apply this to our life we too need to first be happy with what we have and then enthusiastically initiate whatever we want to do. It could be an investment, a startup, a new venture, even mutual fund SIP to name a few.

So if the start is with optimism the end result ought to be fruitful.

2. Proper distribution of money

I have used the word distribution so as it understands how we complicate things in name of investment. So when the kids started the game they used the word DISTRIBUTION. I too thought that how easy it is to divide and distribute the money by buying property, erecting buildings, collecting rent, etc.

Check – Asset Allocation – the formula for investment success

3. Dealing with crisis

The choices we make always have an impact on our lives as we all learn from childhood “to every action there is an equal and opposite reaction.”

So is the case with money management as well. As the game progressed I saw that kids had to balance cash by earning income and saving. That’s what we too should try to do. We should not put all our eggs in one basket rather make sure that we have some cash in hand for the rainy day. We should be well prepared financially to take any blow on our health, market slump, recession, etc.

4. Money gives you the name rich

One very important thing that I observed was that the winner was the one who had the HIGHEST NET WORTH, the kids read as the one who had maximum cash and property.

He was supposed to be the richest as we see around also the net worth of Ambani’s and the Tata’s and film actors and the list goes on.

Some are declared the world’s richest by FORBES but the parameter is the same which is MONEY, PROPERTY, AND EQUITY…..

But in personal life, we should not enter into that competition of comparison but we should know what we have.

Check – How to calculate your networth & why it’s so important

5. Credits

Today we are all in a hurry for everything. We are getting trained to be quick, restless, and get things fast. This haste seems to have become an industry called credit cards.

This game appears to promote the rampant use of credit cards where youngsters seem to have fallen prey to this temptation. It gives them instant gratification but leaves them amidst bad debts, loans, cashless, and eventually crashed.

So guys beware of this addiction. 7 Costly credit card mistakes almost everyone makes

Don’t strive to obtain silver gold and platinum cards rather invest in real gold, silver, and platinum – even if these are mediocre investments still better than cards.

6. Slow and steady win the race

This simply means to take a step behind before you take a leap. Reading the current scenario is extremely important so if you sense a spirit of unrest, rising prices, or deficit in your earnings take a back seat.

  • Cut down on your monthly expenses, create positive cash flow, stop eating out.
  • Remove unnecessary expenditures like buying gifts, clubbing, long drives, etc.
  • Resist impulsive shopping. Don’t get tempted by sales and discounts.

Just sit back, slow down, and feel relaxed.

Read – Financial Lessons for Kids – What and When

7. Nurturing relationships

There was one more thing that proved to be a game-changer.

As the kid with a kind of capitalist mindset was to win, other kid lent some cash to his friend to invest and the winner changed.

This gave my thinking a different dimension and I realized how being surrounded with people and relations who can give you support and level up can help you to be the winner in the race.

So, my dear friends, we need to invest in relations as much as we invest in money and support each other.

NURTURING RELATIONSHIPS is part of our growth.

This mind map will tell what does wealth means to me

Wealth Means a mix or balance of 4 things (print out of this is placed on my side table)

8 things my Kids taught me about Money

So, my dear friends, let’s learn to live a

Fulfilling and happy life.

Check – What does wealth mean to you?

8. Never cheat

Being honest and transparent gives us healthy relations, trust, and goodwill. As I saw that the most honest child was given the responsibility of taking a decision on behalf of others, the currency was given to him for saving and keeping and he was trusted the most with his words having the maximum value.

Money can make us rich but our experiences, mistakes, relationships, and family make us wealthy.

So let us all be wealthy like these kids who fight, take decisions, responsibility, get out of our comfort zone and play just to play and learn and grow.

I think there should be a book on what kids can teach us about money – rather than what we can teach them.

Please feel free to share your experiences in the comment section. What you have learned from your kids – money or otherwise.

Incomplete Details – Even Then, File your Income Tax Returns

Hemant Beniwal
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1
Incomplete Details – Even Then, File your Income Tax Returns

Have you filed your Income Tax Returns?

If not, you should file your taxes before the due date to avoid late fees (Rs 5,000 to Rs 10,000).

Do you have some confusion over the filing of IT returns and are avoiding to file the returns? That may not be very smart.

Incomplete Details - Even Then, File your Income Tax Returns

Common misconceptions – Income Tax Filing

I do not have all the details regarding my tax returns 

Some people are confused about the form to fill, the income details that have to be entered or some other information. There are a lot of tax experts – online and offline who can help you with this. Your financial advisor should be equipped to handle your queries too or at least guide you to the right person.

But even if you are still not clear, go ahead and submit the form. You can always request a rectification or file a revised return when you realise there has been a genuine mistake.

Read – Income Tax Filing FAQs

I do not fall in the income tax bracket and so I am saved from filing IT returns

If you are a person who

  • earns at least Rs. 2,50,000 per annum
  • wants to claim income tax refund
  • wants to carry forward capital loss
  • wants to apply for loan or a visa/ work permit

then you are responsible for filing your IT returns before the due date.

Incomplete Details - Even Then, File your Income Tax Returns Click to Tweet

I have already paid taxes and so my work is done

This is the biggest misconception people have. If you have paid taxes in the form of the employer deducting tax, banks deducting TDS etc., it means you have paid tax but that has to be recorded with the IT department in the form of the completed and verified IT return. You have to file your IT returns irrespective of whether you have paid all tax, are not liable for any tax or have paid excess tax.

Ask Tax Saving Questions here

It is important to file your tax returns for the following reasons –

You will be liable to pay a penalty if you do not file your IT returns.

If you do file returns after the due date and realise that you have to pay tax, you will have to pay interest on the tax as well as a penalty for late payment. This is an unnecessary expense.

You will have some time frame to revise your tax returns. If you file it late, it is difficult to revise the returns.

In many cases, IT returns documents are required while applying for a loan, applying for a visa/work permit and for registering property (land, house).

You can file your returns with the help of an online or offline tax expert or your financial advisor. Alternatively, you can go to the Income Tax Website and file it on your own.

Even if it is late, incomplete, mistake-prone or you have less income

  • Better Incomplete Filing Than No Filing
  • Less Income does not mean No Filing
  • Better to file with mistakes than No Filing
  • Better Late Than Never

I have kept this post short because this was just a reminder to everyone who are still not sure about filing. If you have any questions related to Income tax filling – add in the comment section.

Impact of SEBI’s Categorization & Rationalisation of Mutual Fund Schemes

Hemant Beniwal
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5
Impact of SEBI’s Categorization & Rationalisation of Mutual Fund Schemes

In 2017, SEBI in an effort to bring uniformity in the Mutual Fund industry announced a major change – now mutual funds are categorized so apple can be compared with apple.

If I talk about my 15 years career in the personal finance industry – I think this is the biggest change I have seen in Mutual Funds.

This will have a huge impact on existing investors & even on asset management companies. I may not 100% support this but still, this was required to tame the animal instincts of the fund manager.

Some time back I wrote – Mutual Fund Pollution & how to control. I am not sure if SEBI read this before taking the final decision 😉

Impact of SEBI's Categorization & Rationalisation of Mutual Fund Schemes

Read – ICICI Prudential India Opportunites Fund Review

The five broad groups of Mutual Funds after Categorisation are –

  1. Equity Schemes – Investments in equity and equity related instruments
  2. Debt Schemes – Investments in debt instruments
  3. Hybrid Schemes – Investments in a mix of equity, debt, and other instruments
  4. Solution Oriented Schemes – Investments in specific schemes like retirement schemes.
  5. Other Schemes – Include other categories such as ETFs, Index Funds and Fund-of-Funds

In each group, there are sub-categories and the MF houses have to ensure they invest in a manner that justifies the scheme being in a particular category.

Impact of SEBI's Categorization & Rationalisation of Mutual Fund Schemes Click to Tweet

For example, Large caps and Small Caps are two of the multiple categories in the equity schemes category. The MF house has to ensure that the scheme categorized as ‘Large Caps’ has at least 80% of investment in large caps. Similarly, the scheme marked as a ‘Small Caps’ scheme should have at least 65% of investment in small-cap stocks.

The good part is now large-caps, mid-cap & small-cap stocks are clearly defined – so the universe of stocks is clear for all mutual funds.

In the case of Debt schemes too, there are many sub-categories. Liquid Fund is a sub-category that caters to investments with maturity up to 91 days. If a scheme is a Long Duration Fund, the portfolio should have a maturity of more than 7 years.

SEBI has issued a circular for the complete description of all categories and sub-categories.

The reasons for Mutual Fund Categorisation

  • Many MF houses had multiple schemes with fancy names but were pretty much the same in terms of portfolio and scheme management. This does not help investors much but helped MFs increase their customer base. It is an attempt to curb mis-selling.
  • Many schemes had misleading names that gave the wrong impression on returns, guarantees etc. This led customers to take more risks than they should
  • A uniform categorization of funds across MF houses helps customers compare similar schemes of different houses in an easier and better way. It helps bringing in transparency.

Must Read – Risks in Mutual Funds

The impact of these changes on the retail investor

  • Accurate Comparison of Schemes – Retail investors can compare schemes better. Earlier the scheme name could be misleading or unclear. The descriptions of different ‘large-cap funds’ were different. Now schemes in a category can be compared objectively as they will have similar characteristics.
  • Awareness of Investments – Many times, retail investors are not clear on what they are investing in. Many times, they invest in different schemes but find out that both schemes are pretty much the same. This uniform categorization will help in him being more aware and be able to take better investment decisions.
  • Performance – In the short run, there could be changes in the scheme’s portfolio which could affect the performance. Some might outperform and some may underperform. Many fund managers used to tweak the portfolio to get higher returns. For example, in a large-cap fund, the fund manager would have increased the allocation in mid-cap stocks in certain market conditions to get alpha returns. This may not be easily possible now. Fund managers have to adhere to the categorization strictly.
  • Better Clarity on Investment – The retail investor will have a better picture of how his funds are invested as the categorization is accurate. The fund manager will not be able to drift to investments that do not suit the MF scheme intent or objectives.

ONE MAJOR IMPACT THAT WE MAY REALISE LATER – Categorisation & Rationalisation have a major impact on alpha generation capabilities of ‘active’ funds. Even fund managers are secretly accepting that it will be tough for them to generate alpha in large-cap funds. I keep saying Alpha Gone Index On. I think the time has come to introduce at least 5-10 % large cap index fund in your portfolio. Check an old article on ETF & a recent article on DSP Black Rock Equal Nifty Index Fund.

What Should I Do As A Retail Investor Now?

  • Check the Investment Strategy and investment structure. If it has not changed much, you can continue to be invested in the scheme.
  • Check the Investment Objective. If it remains same, you need not tweak your MF portfolio. But if it has changed and does not match with your financial goals, you might want to reduce your investment in it or exit from it. But do invest in another MF Scheme that suits your financial plan. Do not let your money remain idle.
  • Evaluate your portfolio and see if it matches with your investment plan. The new categorization helps to look at the investments objectively and helps one understand the MF schemes and their investment strategy and structure better. For example, debt funds are more structured right now and this will help you in managing your Debt MF portfolio better.
  • If the MF investment strategy has changed a lot due to the re-categorization, it might not make sense to compare with past returns. So you need to evaluate it differently.
  • Do not rush to buy and sell MF schemes. Check for a period of 3-6 months as to how your investment portfolio is performing and then take a decision. Unless there is drastic underperformance or significant change in investment objectives, you can adopt a wait and watch policy.
  • Check the expenses you will incur in case you exit out of certain schemes and enter other schemes. There was a period of exit window available during which no exit load will be charged if applicable. Also, consider taxation.

The new classifications might have short-term upheaval but in the long-term it is a step towards arming investors with more knowledge and bringing uniformity in the MF industry.

Let me know if you have already rejigged your portfolio. If you have any questions – feel free to add in the comment section.

Nominee Versus Legal Heir

Hemant Beniwal
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31
Nominee Versus Legal Heir

All of us have heard the saying – ‘Nothing is certain but Death and Taxes’. So how much ever we do not like to deal with taxes, we have to manage them. Similarly, though death is not a pleasant topic to think or talk about, we have to understand that it is an eventuality. Therefore it is important that we plan our estate such that it is distributed appropriately among our loved ones.

Nominee Versus Legal Heir

Many people think that they can nominate someone for their investments and assets and they have finished the task. That is not enough!

A nominee is a person  who is appointed by the owner of the assets to transfer the assets  to the legal heirs after the owner’s death. The nominee will hold the assets if there are disputes and till  the legal succession is decided.

A legal heir is a person who will inherit the estate of the deceased individual who is the owner of the estate. The legal heirs can be decided by will or by laws of inheritance applicable. 

Let us look at the various investments, assets and liabilities and how they are managed with regards to inheritance –

Employee Provident Fund – When one opens an EPF account, a nomination has to be given. The nominee will inherit the fund. The legal heir has no right on it. As per the EPF rules one has to appoint a family member as nominee.

Nominee Versus Legal Heir Click to Tweet

Public Provident Fund – In case of PPF, the nominee gets only custody of the amount. The legal heirs are entitled to own it. If there is a loan on PPF, the nominee or legal heir have to ensure to close the loan and pay the interest balance if any.

Fixed Deposits – The legal heirs will get the ownership of the FDs on the death of the depositor. The nominee will again be just a custodian.

Mutual Funds – The legal heirs get the mutual fund units. Mutual fund houses ask us to fill out a nomination form. But nominees are only custodians and will not become owners unless they are the legal heirs themselves.

Shares – It is mandatory to appoint nominees for shares. If there is a joint holder, he/she will become the owner in case of death of one of the owners else the nominee gets the ownership. If a will has been made, then the ownership gets transferred as per the will.

There has been a bit of confusion on the transfer of ownership of shares after the death of the owner due to some court cases. In some cases, the nominee has got the ownership rights and in some cases, the legal heirs have got the ownership.

Real Estate – The legal heirs will get the ownership rights of real estate in case of death of the original owner. The nominee will be a trustee for the estate of the deceased until the estate is passed on to the true owners. The nominee will have no ownership rights unless he/she is the legal heir.

Life Insurance – In case of life insurance, the claim amount goes to the legal heirs or beneficial nominees (if any) after the death of the insured. Beneficial nominees are nominees who are immediate family members such as parents, spouse and children. The claim amount gets transferred only to the beneficial nominee and not to other legal heirs if any. More than one person can be named as beneficial nominee.

Important Tips to Avoid Ambiguity

  1. Ensure that all assets have nominations.
  2. Appoint the intended beneficiaries as nominees or second holders so that there is no confusion and no legal hassles.
  3. It is best to draft a will. A valid will overrides all other kinds of arrangements. It also covers the entire estate.
  4. Documents such as succession certificate and will are important while claiming ownership rights. It is important to have them in place.

Some Frequent Questions Answered

1) Why should I appoint a nominee?

It is important to appoint a nominee so that he/she becomes a custodian of all assets and distributes them as per law or as per the valid will. If there is no nominee, the legal heirs will have to run to every institution to prove their legal status to get what is rightfully due to them.

2) Can a nominee deposit money in the PPF account after the death of the PPF account holder?

Neither a nominee nor a legal can deposit money in the PPF account after the death of the PPF account holder.

3) Can I change the nomination?

You can change nomination for all assets such as PPF account, Life insurance policy (before policy matures), shares, mutual funds, real estate and Bank FDs provided the company is notified and the nomination is within the rules specified.

4) I have not made nominations in some of my assets when I acquired them. Is it possible to do it now?

You can appoint a nominee by filling the relevant application forms and submitting them to the respective companies if you have not done it at the time of asset purchase.

5) Can I choose my child who is not yet an adult as the nominee?

A minor (person under 18 years old) can be appointed as a nominee. The child’s guardian should sign the relevant documents on behalf of the minor.

If you have any questions or observation – must add in the comment section.

Football Can Teach Investors A Few Things

Hemant Beniwal
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0
Football Can Teach Investors A Few Things

All of us have enjoyed watching top-class football action in FIFA 2018. It’s over but will be remembered for major upsets – Italy, Germany or Messi, Neymar to name a few..

Football is a beautiful game & we can also learn a few lessons – Financial 🙂

Football Can Teach Investors A Few Things

I don’t have to tell you the importance of Goals in Football & your life… Let’s learn a few important lessons…

Effective Management

Great players, great coaches or great managers alone cannot win the World Cup. All aspects of a team – players, practice sessions, budget and relationship between coaches, manager and players have to be managed effectively to get the best results. Only having a great coach or a great past record will not help.

For example, Germany has a wonderful record in the World Cup but crashed out early. Brazil has many star players but that was not enough for them to stay on till the finals.

Different players and strategies against different competitors have to be managed appropriately. Similarly, different asset classes have to be managed differently depending on their characteristics, current performance and future potential.

Football Can Teach Investors A Few Things Click to Tweet

Right Mix of Assets

A football team cannot win by having strikers only or only defenders. A good team will have the right mix of strikers, defenders, midfielders, wing backs and solid goalkeepers.

Similarly, you should have an investment portfolio with different asset classes so that you earn optimum returns and you are hedged against extreme market conditions.

You should diversify your investments in equity, , debt, real estate, gold etc. based on your risk capacity, your risk tolerance, market conditions, performance of assets etc.

Bounce Back

Belgium were two goals down in the match against Japan. Then in the last 20 minutes of the game, they scored three goals to win the match.

Similarly, sometimes assets do not give returns as per expectations. Other times, we may make losses. It is important to take a rational approach and take steps to mitigate the losses. We cannot be led by superstitions, wrong advice or ill-informed tips.

It is important to be persistent till the investment goal is achieved.

Start Early

Preparations for the World Cup start really early. Players are identified early on and based on their performance, they are selected and groomed for the World Cup.

Similarly, you have to start investing when you are young. This will ensure that you are in it for the long-term and you have time to build your wealth and rectify mistakes if any. The power of compounding will work on your investments which will allow you to make maximum gains.

Goal Oriented Approach

A good team develops strategies to play the game. The strategy is then tweaked depending on the opponent, match conditions etc. The team is committed to winning the match by scoring goals. Similarly, you should have the goals in your life.

You should set up short-term, medium-term and long-term investment goals. You should then manage your investments such that you achieve your goals.

Stay away from fouls

Players who committed fouls in the knock out stage missed the next game which means changing strategy and looking for alternate players.

You should not break the rules of investment. For example, trading based on tips can lead to big losses. Deviating from the financial plan can lead to missed goals.

Make the most of penalties, penalty corners and free kicks

It is not easy to score goals. When a team gets a free kick or a corner, they make the most of it. Mile Jedinak, Cristiano Ronaldo and Mohamed Salah have very good conversion rates of penalties.

When you get a windfall such as a bonus or a cash prize, do not squander it away. Use it to achieve your investment goals. You can use it to increase your investment in a particular asset or pay off a loan rather than spending it on random things.

At the same time, if you miss a good investment or have to sell off an investment for some reason, do not be distraught. Move on by tweaking your investment strategy to suit the current scenario.

Hope you enjoyed this post – will love to hear football analogies from you in the comment section.

Importance of SYSTEMS in achieving Financial GOALS

Hemant Beniwal
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16
Importance of SYSTEMS in achieving Financial GOALS

Whenever you see anyone who has set a certain benchmark for you – do you feel inspired?

Do numerous thoughts run through your mind?

Do you feel the urge to be at that position?

Do you think what made them attain that place?

If your answer is a YES then let’s come straight to the point which is a small word but with great and infinite dimensions;

The word is GOAL. This 4 letter word envelops our life’s all acquisitions, possessions, achievements, and accomplishments. These are a few parameters that help us to measure our success.

Importance of SYSTEMS in achieving Financial GOALS

GOAL

We all have different ideas and perceptions of the word GOAL.

Goals are of different types as:

  • FINANCIAL GOALS
  • ACADEMIC GOALS
  • FITNESS GOALS
  • SPIRITUAL GOALS
  • PERSONAL GOALS
  • RETIREMENT GOALS
  • CAREER GOALS

Now let me elaborate a little

These days’ people do a lot of things like:

  • Going to gym
  • Take a healthy diet, avoid junk food.
  • Do meditation
  • Detox etc to name a few.

Can you understand why all these things are followed, perhaps you hit it right. It’s simply because their GOAL is FITNESS.

Importance of SYSTEMS in achieving Financial GOALS Click to Tweet

But can you imagine achieving this without following a plan?

No one can!!!

That’s because without system and discipline you cannot be consistent and gain what you want, as goes an old saying ‘NO PAIN NO GAIN’.

Read – Setting SMART Goals

Financial Life Planning System ©

Check the system that we have built with more than 12 years of Financial Planning Service Experience.

Financial Life Planning System

Financial GOAL VS SYSTEM

But imagine that what if a person followed only SYSTEM without pursuing a GOAL would he still be successful?

My answer is ‘MAYBE’– but can someone achieve Goals without System – my answer is ‘NO’.

When you focus and pursue a system whether it is your daily exercise or habit of saving money you ought to end up getting something.

So the crux is that in order to achieve anything in life first you need to clearly identify what is our goal.

But that’s not enough. It’s just the beginning; there is something more important that follows which is called as SYSTEMS.

Now don’t get confused!

You need to know that both when GOAL and SYSTEMS become hand and glove you can catch success.

Isn’t that interesting!

Now I shall share with you a few tips to make both of them work together.

Let’s start talking about what may matter most in your life at any point in time.

Yes, you guessed it right. I’m talking about making and putting money in an organized way we can call it, IMPORTANCE OF SYSTEM TO ACHIEVE FINANCIAL GOALS.

Theoretically, it may seem absolutely clear to have and allocate money for these long-term financial goals

But honestly speaking it’s not at all a cakewalk.

Goals build more stress and pressure but if you stick to a system – you can enjoy the journey.

When you get committed to a system it becomes part of your habit thereby actions leading your path.

I don’t mean to scare you but I believe it’s my responsibility to share the ground reality with you.

Life is not as predictable or convenient as shown in television and advertisements.

Infographics – Maslow’s Hierarchy of Needs & Your Financial Goals

SYSTEM

In order to make your future safe and be prepared for the inevitable, you need to change from ‘I think wisely’ to ‘I execute systematically’.

Here you can see a few tips to start with this process that you can call a budgeting system:

  • Maintain a diary to see and check your everyday expenses.
  • Sit with your partner at least once a week and discuss savings.
  • Brainstorm your ways to improve your financial future.
  • Compare your income and expenditure every month with the previous month’s.
  • Prioritize your expenditure.
  • Keep track of your activities.

When you have some of the mentioned points as a system in your life you will eventually have something for your future and for your rainy day.

I’ve found that goals are good for planning your progress and

systems are good for actually making progress.

Goals can provide direction and even push you forward in the short term, but eventually, a well-designed system will always win. Having a system is what matters. Committing to the process is what makes the difference.

Read – Budgeting: First Step of Financial Planning

NO SYSTEM

If you are good at one or two things that are mentioned in the below list – that may not help. You have to add all this & much more to a bigger financial system:

  • Think of saving predictable and feasible amount of money.
  • Make a list of areas where you can avoid spending.
  • Try to settle for less in some areas. For example, if you want to buy a pair of jeans check out different brands and online offers before you impulsively pick your choice.
  • Most important: STAY IN TOUCH WITH YOUR FINANCIAL PLANNER to help you to save and invest with discretion.
  • Do not pile on too many EMIs and debts.
  • Do one thing at a time.
  • Be practical. Don’t expect a full moon on a new moon day. Rather wait for the right time.

So all I intend to say is that be CONSISTENT and fall in love with SYSTEM rather than planning and thinking of goals and you shall see how the seeds sown today become a beautiful and fruitful tree tomorrow.

All you need to do is systematically water, nurture, and be patient.

As rightly said by someone:

“People often confuse confidence with a display of magnificence. I speak with some years of observation on people who become an inspiration to many; confidence mostly comes from being habitually consistent.”

Please share the Importance of achieving Financial GOALs.

Personal Finance Lessons From Kar”Nataka” Election

Hemant Beniwal
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9
Personal Finance Lessons From Kar”Nataka” Election

You will agree elections have become really interesting – Timepass.

Sometime back had a word with one client in England and he told me that if you are not following football you are considered dumb in Europe.

I think these days same applies in India if you are not following the election mania.

Personal Finance Lessons From Kar"Nataka" Election

Let’s start with a joke that I got on WhatsApp. 

पति-पत्नी रात में बिस्तर पर खामोशी से लेटे हुए।
आपस में कोई बात नहीं…
पत्नी के मन की चिंताएं…
1. ये मुझसे बात क्यों नहीं कर रहे?
2. क्या अब मैं पहले जैसी खूबसूरत नहीं रही ?
3. कहीं मेरा वजन तो नही बढ़ गया ?
4. कहीं मेरे चेहरे की झुर्रियों पर इनका ध्यान ना गया हो?
5. कहीं इनके जीवन में कोई और तो नहीं आ गई ?
पति के मन की चिंता….
साला कर्नाटक में 8 विधायकों का इंतजाम कैसे होगा .? ?

Finance Lessons from Karnataka Election

People have started taking interest in passive politics. Not sure if this is because of social media influence, electronic media or just my age that I have started noticing 🙂

But I think we can learn Personal Finance from even this Karnataka election:

Life priority

First, let me contradict what I mentioned in earlier part of this post. If you are not a politician does it really make sense to waste so much time on these elections?

Every year we have two-three elections, and media make a lot of noise just to catch the eyeballs which help them in increasing their advertisement revenues. Politicians love power. But what about us? For us its family, our job – that’s priority.

Focus on things that you can control

I have checked voter turnout of these elections I think it’s around 72% and maybe highest in Karnataka history. This is good and people should participate and use their voting right but the result is not in our hands.

Whichever side you were – you can hardly make any difference to the election happening in the south by fighting with your friends on Facebook in North.

Average – playing with numbers

Interesting tweet by Siddaramaiah

This is an awesome example of the misuse of averages. [later some media person asked him about the tweet but he was not aware of because these days most of these Twitter handle are managed by some professionals].

If I say- the average annual return of xyz equity fund is 15% you may say wow I will get 15% year on year – I will say oops. Hmmm

Averages in investment world are misguiding. In equity in one year you may get 50% plus but next year you may get minus 25%. I think new clients don’t understand this or they don’t want to understand this.

{I will write a detailed post on this}

Dynamic

I keep saying that life is dynamic so plan cannot be static.

Congress and JDS fight election against each other but when they were not able to reach the majority on their own. Then they shake hands.

So when situation change you should be mentally prepared for tweaking the plan.

It’s not over till it’s over

Election result day was really interesting, Congress was neck to neck initially but then major part of the day it was believed that BJP will get a majority on its own. BJP people started celebrations but by end of the day they got a rude shock – in Hindi “haath aya munh na laga“.

Sometimes we get carried away by the market – things start looking so easy and achievable that we lose focus. We have long-term goals and to achieve them it’s really important to keep calm.

Bw in politics “it’s not over till I win”

Protect Resources

Congress & JDS combined had wafer thin margin so they played their cards well by safeguarding MLAs in resorts.

When resources are limited at some stage wealth protection is more important than growth.

Difference between theory and practice

HD Kumaraswamy in all his interviews before the result was saying we will not shake hands with anyone (theory) but even before the announcement of final results, he was at Governor’s office with Congress (practice).

In theory – theory & practice are same but in practice, it’s not. Let’s not talk about Morality here 😉

Mr. Governor

This has happened many times in Indian politics that rules are changed based on whims & fancies of ruling party at the center. The other parties have their limitations.

Similarly, in investment – rules are tweaked by SEBI (recent Mutual Fund Categorisation) or Finance Ministry (Long Term Cap Gain) – we have no choice but to play with new rules.

No need to imagine Supreme Court will help us.

Media

Is just blah blah blah – be it politics or finance. They have no clue about the future but they know how to keep you hooked.

Hope you enjoyed the post – feel free to add your learning from elections.

5 Lesser Known Investment Options

Hemant Beniwal
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8
5 Lesser Known Investment Options

You have to plan your finances such that your immediate and long-term financial needs are met. Investment planning is a key component of financial planning. Investments will aide in wealth growth and income generation.

After you retire, you will not have a regular salary but you will have monetary needs. Therefore it is important to have financial stability in life. It is easier to meet other challenges in life if the financial aspect is taken care of.

There are a variety of investment options in India like equity, mutual funds, bonds, PPF, etc. Check lesser-known investment options.

5 Lesser Known Investment Options

Lesser-Known Investment Options In India

  1. Exchange-Traded Funds (ETFs) & Index Fund – ETFs are funds that invest in other assets such as stocks, indices or commodities. They are like mutual funds that can be bought and sold on the exchange like BSE & NSE. There is lesser risk in ETFs as compared to direct equity as they are well diversified. But till date, active funds are giving better returns than ETFs but things will soon change – at least on the large-cap side. In developed countries, people have started preferring ETF over active funds but in India liquidity can be an issue. Some examples of ETFs in India are ICICI SENSEX Prudential Exchange Traded Fund (Underlying product – Sensex), Reliance ETF NIFTY BeES (Underlying product – NIFTY 50 Index), etc.

Check – DSP Equal Nifty 50 Index

2. Atal Pension Yojana – It is a pension scheme backed by the Government of India. The laborers in the unorganized sector are the target audience for this scheme though people working in the private sector and self-employed people can also participate in it. The participants are encouraged to save money for their old age. A person can contribute a fixed amount depending on the pension that he/she wants to receive. The contribution has to be done until one reaches the age of 60 years. The contribution depends on his/her age. The pension receivable can be Rs. 1000, Rs. 2000, Rs. 3000, Rs. 4000 and Rs. 5000 depending on the contribution. The pension will be paid to the spouse in case of subscriber’s death and to the nominee in case of spouse’s death. It is a scheme to help the unorganized sector in their old age when they may not have a source of income.

5 Lesser Known Investment Options Click to Tweet

3. Sukanya Samriddhi Scheme – This scheme is a savings account that can be opened in the name of a girl child from the time she is born till she becomes 10 years old by her parents or her guardians. It can be opened in a post office or public sector bank like SBI or Bank of Baroda etc. The minimum deposit for the account is Rs. 1000 and the maximum is Rs. 1,50,0000 in one year. The rate of interest currently is 8.1%. It is a good scheme for the girl as it gives her some financial security. It is a less risky scheme compared to Mutual Funds and Equity. Check – Sukanya Samridhi Review

4. National Pension Scheme (NPS) – It is also a Pension scheme for people between the ages of 18 and 60 years. It is a market-linked retirement plan. There are two types of plans –

– Tier I Account – There are restrictions on withdrawal

– Tier II account – It is a voluntary plan where there are no restrictions on withdrawal

Check – What are alternative investment funds (AIFs)

The contribution is invested in different instruments such as index-based stocks, Public sector companies’ bonds, and Government bonds. 25% of the contribution made by a subscriber is exempted from income tax in partial withdrawal. When the subscriber reaches 60 years, 40% of the amount withdrawn is exempt from tax. Up to 60% is withdrawable and the rest has to be invested in an annuity product. Income from this investment is taxable. You can invest any amount from Rs. 6000 onwards. The contribution is deductible under Section 80CCD up to Rs. 50,000 and amounts up to 10% of salary are also deductible from taxable income. An investment up to 20% of gross annual income is deductible from taxable income, subject to a maximum of Rs. 1,50,0000 for self-employed individuals. Both resident Indians and NRIs can invest in NPS.

5. Fixed Maturity Plans – Fixed Maturity Plans (FMPs) are close-ended mutual fund schemes which invest in debt instruments such as certificates of deposits (CDs), money market instruments, or bonds. They are low-risk instruments and offer returns that are not guaranteed. The return is usually higher than that on FDs due to tax arbitrage if you hold for 3 years. Different plans have different maturity periods from 1 year to 5 years depending on the instruments invested in. In case you have to sell it before the maturity date, you will have to sell on exchanges but liquidity is an issue. It is therefore better to invest an amount that you will not need anytime soon. There is a tax applicable on dividends distributed and capital gains tax apply on FMPs based on growth.

It is important to invest in a variety of instruments for short-term returns as well as long-term returns so that you are financially secure whether you have a regular source of income or not.

Please share any other investment that you feel is lesser know & should be part of the above list.

Mutual Fund Systematic Transfer Plan (STP) vs Lump Sum – Which way to go?

Hemant Beniwal
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5

Finally, it looks that Indian investors have started taking interest in understanding Mutual Funds & how these can help them in achieving their goals. Recently I got a query that – How does systematic transfer plan work? – just to share he is a new investor. So I thought let’s try to simplify Mutual Fund STP Concept.

Mutual Fund Systematic Transfer Plan (STP) vs Lump Sum – Which way to go?

Check – Mutual Fund Frequent Asked Questions

Why are Indians Considering Mutual Funds?

India is the fastest major growing economy in the world and with the changes in the political environment and other external factors; everything looks good for the country, at least for next one decade.

Since last 15 years Rs. 4-5 Lakh crore has been invested into equity market out of which 20-30% is recently invested in last 1 year.

With all the positive news flowing around, the retail participation through mutual funds has also increased especially in the equity segment. The Indian market has given about 25-30% return in last 1 Year.

Mutual Fund Systematic Transfer Plan (STP) vs Lump Sum – Which way to go? Click to Tweet

People are expecting the rally to continue and hence investing large amount into equities in lump sum.

One cannot predict the market direction, it may go up or come down, nobody knows. So, can we say that investing in Lumpsum is right or systematic transfer plan (STP) route is a better alternative?  Let’s figure out both the investment options to know which is better for long term.

Read – SIP Magic

But first, let’s understand what STP is and how it works.

What is Systematic Transfer Plan (STP) in Mutual Fund?

Systematic Transfer Plan is an option of investing in one scheme from another scheme. It is like SIP, however, the only difference is the source of money is not a bank account but another scheme where money is already invested.

One can also use STP option to shift from equity to debt. This is generally used when someone wants to book profits in equity. In most of the cases, STP option is used to invest in equity fund from a liquid fund.

Let us understand the difference with the help of below example.

Suppose Mr. A wants to invest Rs. 1,00,000 in equity fund for 4 years. He is also not sure whether to invest in lumpsum or to take systematic transfer plan route. So he did some calculations with the past data and then invested his amount. Given below are the calculations:

Lumpsum Investment in Equity Scheme

Amount Invested Date of Investment NAV No. of units allotted Date of Redemption NAV Amount of Redemption = 5753.73 *Rs. 20.32 CAGR
Rs. 1,00,000 03/01/2011 Rs.17.38 5753.73 01/01/2015 28.65 Rs.1,64,844 13.31%

Lumpsum in Liquid Fund with Mutual Fund STP to Equity Scheme

Suppose Rs. 1 Lakh is invested in liquid fund on 03/01/2011 and instruction is given for STP in Equity fund (Rs. 10,000 on 5th of every month for 10 Months). Suppose the Liquid Fund earns 8% interest on reducing balance method. So total interest for 10 months would be Rs. 3,677/- and the last STP will be of Rs. 13,677/-

Date Amount NAV No. of Units
05/01/2011 Rs. 10,000 17.11 584.45
06/02/2011 Rs. 10,000 15.55 643.08
07/03/2011 Rs. 10,000 15.81 632.51
05/04/2011 Rs. 10,000 17.12 584.11
05/05/2011 Rs. 10,000 15.97 626.17
06/06/2011 Rs. 10,000 16.23 616.14
05/07/2011 Rs. 10,000 16.73 597.72
05/08/2011 Rs. 10,000 15.78 633.71
05/09/2011 Rs. 10,000 15.11 661.81
05/10/2011 Rs. 13,677 14.59 937.42
Total Rs. 1,03,677   6517.12

Redemption date – 01/01/2015 NAV is Rs. 28.65

Total Redemption Value – Rs. 28.65 * 6517.12 = Rs. 1,86,715

CAGR = 16.89%

Must Read – How Healthy Is Your Mutual Fund Portfolio?

Lump Sum Vs STP

We can see in the above example that when Mr. A invests lump sum amount into equities he gets a fixed price for his investment. While when he choose systematic transfer plan route via liquid, he get rupee cost averaging benefit in equity and the lump sum fund in liquid also generate some returns. This helps in reducing overall risk and results in generating higher CAGR over the years.

Don’t look at the returns because if I change the period – the result can be totally different. Overall this strategy is helpful if the investor is scared of market movements.

We suggest Mutual Fund STP route to all new investors – who would like to participate in equity markets but don’t understand much. At least its better than panic buying after a long bull run.

Must Read – How Systematic Withdrawal Plan Work?

Few Frequent questions that we get related to STP?

Can I expect better return from STP than lump sum?

Remember, if you plan well and invest systematically then it will better in long term. This reduces risk in mutual funds but can’t eliminate it fully. But don’t expect higher returns.

Mutual Fund STP Tax?

The tax will depend on your scheme, not the process that is followed in Systematic Transfer Plan. Normally it will be transferred from liquid to equity fund so when monthly units will be redeemed from the liquid short-term capital gain of debt will be applied – so that gain will be added to income & tax according to your tax bracket.

If you will redeem from equity before 1 year there will be 15% short term capital gain tax – after one year 10% long-term capital gain tax.

Difference between STP & SIP?

As mentioned above “the only difference is the source of money in STP is not a bank account but another scheme where money is already invested.” systematic transfer plan is useful when you have got a bonus or inherited a big amount or got maturity from an insurance policy or FD that you would like to invest in mutual fund.

If you are a salaried guy with regular income SIP is the right way to invest your income.

So, what’s your investment strategy? Have you ever tried Mutual Fund STP?

Special Need Children Financial Planning Book – Review

Hemant Beniwal
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0
Special Need Children Financial Planning Book – Review

I have worked with Special Needs Children Families so I know how tough its to plan life & finance in such situations.  Jitendra Solanki has written an awesome book “Financial Planning for families having children with special needs”. As Jitendra runs a niche Financial Planning practice PlanSpecialNeeds.com for these families – he is able to share practical aspects.

This is the first book published on this subject in India. I request you to share my review or book with such families that you know & if possible also on social media. (you can also consider gifting this)

This book is available on all leading Online & Offline Stores including Amazon & Flipkart.

Special Needs Children  Families

Special Need Children Financial Planning BookWhen we speak about families with special needs dependent then few of us would actually know what goes in there. In tradition planning children Education, Marriage, retirement, A Car, a house are goals around which the life revolves.

We plan to ensure that we provide the best education to our children. We know that once children are well settled in their life we will be free from their responsibilities. So our planning then focuses on ourselves i.e. golden years of our life.

But when there is a special needs child the situation is completely different. These goals are there but the lifelong care of a special needs child is a responsibility which goes beyond parents lifetime.

Put simply the concern is for 2 generations till our lifetime.

Special Need Children Financial Planning Book - Review Click to Tweet

In India Situation is even worse

In India, we have not progressed well for benefit of special needs dependent families. Due to this, there is lack of resources which force families to avoid planning. There are not even trained advisers who understand the life of a family with special needs dependents.

In such situation families find it difficult to plan because they do not know what to plan & where to start.

Special Needs Children Financial Planning Book

This book “Financial Planning for families having children with special needs” actually answers the above 2 questions. Written by Jitendra P.S.Solanki, who is a financial planning expert advising special needs children families, the book presents a holistic approach to plan for 2 generations.

You can know more about the author here – Plan Special Needs Team (Jitendra’s wife Dr Shweta is occupational therapist for special needs children families so I think that experience is reflected in this book)

The book is an excellent resource for special needs children families. Written in a simple and understandable language a glance at the index only will generate interest in you to read it through.

The first few chapters of the book are actually for all of us. Written with the aim to raise awareness on the issues surrounding a special needs dependent family, the book gives a good picture of our country approach towards such families.

It goes through describing the challenges faced by families and what changes should be bought to uplift their living.

The book illustrates beautifully the emotions parents goes through right from the news of a special needs child arrives to the child lifetime.

What are the different stages of a special needs child life which brings a concern to families and how to address them is what the has been described excellently in the book.

The author being a financial planning expert has done an excellent work in illustrating step by step process of planning for the child lifetime care and other family members.

The chapters dealing with estate planning issues like Will, Trust, Guardianship etc. are explanatory and answers many questions which are hovering around the families.

What makes the book interesting is the charts, tools and tables which makes it quite easy for a family to grasp the guidance. The chart below is an example of how the book becomes easy to understand when you read these charts:

Special need Child Life Stages

The author has done a commendable work by bringing in the book real-life examples of families be it on emotional or financial aspects.

At the end, the book provides a list of resources for families which are instrumental in guiding them appropriately.

What I liked the most in the book is guidance through tips in the chapters and stepwise explanation of planning for the child future.

This is not a book but a complete guide for the families with special needs dependents. They can certainly look upon it as a support where they can seek the answer to one question – Where to start?

I read a review of this book on Amazon – shows what kind of pain these families go through..

Special Needs Children Book

I will request you to share this book with as many people as possible so that this can reach people who actually require this & help Special Needs Children families to plan for 2 generations. 

You can also share my review or Amazon’s link on social media.

Thanks in Advance.

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