Your Personal Financial Plan – Checklist

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April 12, 2013

Your Personal Financial Plan – Checklist

The life of common man revolves around some financial goals which he/she wants to achieve. Buying a house, Comfortable retirement, children future planning and their marriage are those primary goals which all people would like to see through. However, the limited resource that one has does not allow allocating money towards all of these, which impact some of the goals.

Hence, there is always a need to plan all your finances well in advance so that it is easier to draw a roadmap for your financial well-being. Financial Planning is a true process by which you create a blueprint for achieving your life goals. It helps you to bridge the gap between the funds required and resources you have.

To go through the entire process, you need to first identify your goals and quantify them. Then analyze current financial situation and utilize your limited resources in meeting the financial goals. Changes should be made in your cashflows, if required. Once implemented, review it periodically to accommodate any change in your financial situation during your lifetime.

However, many individuals find it difficult to implement a financial plan. Primary reason for this is the change in lifestyle recommended by their planners. Even if it gets implemented it loses track in between and the entire objective of creating a financial plan becomes useless.

Your Personal Financial Plan - Checklist Click to Tweet

Financial Planning strategies recommended by most planners are not new innovations but mostly follow the basics of personal finance, which if followed rigorously, can help immensely in achieving life goals. Listed below are 10 basic strategies (your checklist) which drives success story of any financial plan.

Financial planning is all about making good financial choices. That’s why it’s something you should do over the course of your whole life – even before you have a lot of money saved. In fact, it’s one of the most important things you can do for yourself and your loved ones.

Money vs Job Satisfaction – Which is More Important for You?

Family Finances

Hemant Beniwal

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April 5, 2013

49

Money vs Job Satisfaction – Which is More Important for You?

In corporate world, it would be called “RAM RAJYA” (perfect rule of state) if you have both Money and Job satisfaction. But have you ever experienced it? Maybe yes, maybe rare and the majority think this is not possible. I find a lot of people and career experts who preach “do what you like, money will follow” theory but does this concept holds the ground?

Talented people lead business that their father made for them; creative people work behind files, people loose health and murder family time for money. Then they say the money is not “enough”. The need of more money leads to more head-hitting and job dissatisfaction. Then there are lures and distractions as some will always be ahead of you in terms of money and position. The number game of “I will be the boss” makes you do what you don’t want to do. But again you get money, so I will hate what I do but will continue to do it as I get money. Is this justified? But yes this is happening and I have seen my clients, friends, and well-wishers doing this. I am putting certain cases in front of you. (Names have been changed as my friends also read my posts, and I will be murdered if I write their original names)

Read: Steps before you start your own business

Money Vs Job Satisfaction? OR…Money + Job Satisfaction?

Disclaimer – this article is a question that I am throwing at you, by no chance I answering this or guiding you. But still, you should try to answer this question & also ask yourself “what are you trying to achieve in your life?”

Money vs Job Satisfaction - which is more important for you? Click to Tweet

Real-Life Case 1

Amit, a Regional Manager in an MNC wanted to shift to his native city as parents were aging and had health issues. He willingly took a cut of 20% on his CTC and shifted to the new company. The company gave him nil increments during the next appraisal year and soon he was frustrated. Money which was not a problem a year ago became his mind tenant now. He could not get enough motivation to work and soon lost control there by hitting his performance. The company soon smelled that and he was shown doors. A case where the satisfaction of job and money changed due to working environment.

Real-Life Case 2

Ajit was a creative mind but had to start his career in a sales job as he was campus placed and his management institute could get only companies looking for sales profiles to the campus. And he himself was not sure of his creativity even though friends in college said he should have joined advertising instead of front-running jobs. The youth inside him, the money, the promotions, the career, and the reputation made him an enviable executive. But the artist in him kept him bothering. Now with a career of 12 years in sales, loads of family responsibilities, borderline cholesterol problem, and good money he keeps thinking he should change the field but can he? A case where a person does not know what is job satisfaction. Money keeps him moving.

Real-Life Case 3

Anant was a confused DNA. He was in a good job and was doing good also but deep inside he knew he was not meant for the F & M language, professional snakes-n-ladders, late night boozing and corporate parties. He was a quite person from inside and wanted to have his peace. He quit his job and started something which was never his passion but made that field his passion. Now he does something which is not his big dream, but he has to live with it and earn from it. He knows that the new profession will give him adequate money but less reputation and friends. He cannot go to work under somebody as he considers himself a misfit in corporate world. He never had a job satisfaction and nor will his own work give him job satisfaction. A more complex case as person thinks negative about himself.

Real-Life Case 4

Akash always wanted to do something of his own. He believed in his qualities but family responsibilities took him to job world. He started from the ground reached middle-level management in 10 years. His friend who was starting his own business made him an offer to join. But he declined because now his vision had changed. He wanted to taste the success at the top level. His package was decent and when the company gave him a transfer without adequate hike, he accepted thinking it as a career upgrade. He got less increments but he kept himself motivated by keeping his aim in front. In moments of stress and failure, he often thinks that if he would have accepted his friend’s offer he could have been making the same money but the family could have been together. But on second thought he thinks a CEO or being MD has its own high and he wants to have it. A case where the person is not bothered about job satisfaction or money. Aspirations are priorities of life.

Read- Saving is not enough, invest your money

Real-Life Case 5

Aneesh always dealt with crush and had no serious affair with the companies he worked for. Some companies closed operations/departments and which did business Aneesh could not stick due to performance issues. After 7 years of work experience and 11 employers on his resume, he was the unlucky one. He neither had the guts to start on his own nor he had enough backing to support a new start-up and family. Finally, after 7 years he landed in a company which was a laggard in the sector but did some meaningful business. Somehow Aneesh found this company as a stopover and he stick for 3 years in the company. His resume is sound now but his package due to frequent shifting is below for a standard of person with 10 years of experience. Aneesh has no way to get his package increased nor does he want to experiment again with new companies. He is settled and making no move to change. A case where job satisfaction is dealing with a money problem.

Why do people leave jobs & change careers?

In my practice, I have found a direct correlation between personal finance and job satisfaction. People who had job satisfaction had a straight and steady career and had less money wasted on shifting cities and financing the period between changes in jobs. Also, you can imagine what happens to my calculations when a client who gets his financial planning done for the next 30 years of service life, comes back and say that he has changed his mind and he is starting his own venture and needs assistance to finance it. So why do people leave jobs or change careers?

Well I read somewhere that one must never change job if you:

1) Hate your boss.

2) Are looking for happiness.

3) Want more meaningful life.

But who is contended? Everyone hates his boss (even your boss hates his boss), everyone is hunting happiness and everyone wants more in life. Maybe money or a little bit more money help to swallow this quinine. But money has its after-effects too.

Few questions to be asked?

1) Is job satisfaction possible? Can you actually derive pleasure working for someone else?

2) Can money be used as a medicine to provide job satisfaction?

3) Is money and job satisfaction synonym?

4) Is starting a business or changing job a cure to job satisfaction?

Well, I leave you here with these questions. Please share your experience what you feel about this topic. You or maybe someone near you must had taken a strange career decision impacting his financial position. Do share your learning in the comments section.

15 Ways To Save Money on Holidays

Family Finances

Hemant Beniwal

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March 26, 2013

29

We are not the geek types… right? Do we work hard and party hard? What’s in a life if you do not get an opportunity to sit back, relax, spend quality time with family, explore nature, take parents at a divine place or chill in hills…. Well at it takes is to open your minds and pack your bags. Well, holidays are an expense and like any other purchase, you have a right to get full benefit of it and also save in case you can. You must be planning something in summer vacation, hence thought sharing some insight on this topic.

My Little Witches holidaying 🙂

Read – How to make the best use of section 80c

Most people enjoy holidays (also feel more energetic & focused afterward) & on other hand, few people get a heart attack when it comes to spending holidays. Because last time you went for a trip, you came back with a hole in pocket and memories how the travel agent made you his scapegoat? How the bookings that you made using your friend’s reference to a resort turned out to be a nightmare. How you made a balloon out of money and came back exhausted and with a firm mind that – no more holidays from now onwards…

Here is how you can have king-size holidays, relax and save few grand:

How to save money on Holidays Click to Tweet

15 Ways To Save Money on Holidays

1) Fix a budget: always be sure what you have in your plate. If you keep an open budget than sky is the limit. If you really wish to save some money it all starts from the budget. Fix an amount you are comfortable to spend. If it is a major holiday like a foreign travel or travel with many destinations over a fortnight or more, it is advisable that you plan for it at least 2 years in advance so that you have time to allocate and save funds for this big expense.

2) Fix the destination: the major problem happens when you are not sure of a destination. See this is a blockage as most things like mode of travel, stay, forex requirement, etc can be estimated once the location of the visit is zeroed upon. So first thing first, do thorough research on Google about the places that fit into your budget. Ask family members and friends who will accompany you. Take into consideration the likings and health of the fellow travelers.

3) If possible avoid peak seasons as the rates are at least 25%-50% more of the normal rates. But we all know during peak season only the kids are free. In this case, try to travel on the latter part of the season. If you traveling on a weekend, include weekdays also so that the rates get average out.

4) It is always better to travel in a group. Custom-made tours are costly. Also besides socializing you can avail group discounts, joint transportation cost,s and other group benefits. Also, it gives you comfort and safety when you travel in a group comprising your family members and friends.

Read – Income Tax Notice – Top 7 Reasons You Can Get an Income Tax Notice

5) You have also to decide between a local agent and a travel company. Often destinations within the state or renowned tourist destinations are well covered by local agents of reputation. So you may get a trip with more frills if you plan it on a local basis.

6) Once the place is finalized, call agents and search on the internet for the relevant package/deals/rates of the requirements. Do not expect customization to the highest degree. A bit of here and there should be flexible.

7) Book early to avail discounts and cheap fare or tariffs. Also when booking early check the refundability clause in case of cancellation. Normally air tickets can be rescheduled by paying a fee.

8) If you are booking international travel, the internet might be very useful. Try to google the names of low-cost airlines. There are lots of low-cost airlines like, Dragon Air, Scoot, Wizz Air, Cambodia Angkor Air, and Jetstar, which are not covered by air ticketing websites/portals. You need to go to their websites and compare the airfare. There is a substantial difference and you can save a good amount of money.

9) For accommodation, try to search for new properties that have recently come up. These properties are struggling to get business and will give you a good deal. Also instead of more number of rooms ask for bigger rooms with extra bed facility. This also saves a lot of money.

10) Try getting accommodation with free facilities like breakfast, happy hour snacks, spa, gym, sightseeing, and wifi.

11) Try to get the place of accommodation near to airport or railway station. This saves a lot of commutation time and money. Also, avoid local cabs if the city has good public transportation. A place looks different when you travel it in metro, tram, rickshaw, or a tonga as the case may be.

12) Always carry a download or list of restaurants and places of entertainment of the place you are visiting. If you are traveling long, food-related issues may play a spoil. If food becomes a problem, stick to basic instead of experimenting and hunting restaurants and the basic is to pay a visit to the local grocer and get some bread, biscuits, butter, jam, and namkeen.

13) If traveling internationally, keep an eye on the exchange rate. Do consult someone who is a frequent traveler to that country. Sometimes it is better to exchange currencies at the destination. The exchange at reputed merchants only. Also, ask for the currency limits and disclosures required for that particular country. The limit of carrying the INR, local currency, dollars, and bankers’ cheques/traveler’s cheques are different for each country. Be conversant to these rules and regulations to avoid penalties and stress.

14) At a normal rate a call made from the US may cost Rs 150 per minute and RS 75 per minute for roaming. It is advisable to purchase a calling card which will reduce the communication expenses. These are issued by Airtel, Matix, and Reliance Communication. Also if you get internet it is advisable to use chat and Skype for reaching the near and dear ones.

15) Must Carry Essentials: First aid kit, own toiletry, list of emergency contacts, a list of call centers of all the credit/debit cards use, all discount coupons/vouchers that you can avail and printouts/downloads of all travel information.

Well, you have also traveled quite a bit and maybe more than me. Share your personal experience in the comments section, how you saved money on travel. Also share if you made a mistake and took costly holidays, so that many of us can be benefited. Well, summer vacations are ahead of us… let’s enjoy and be happy to save.

10 Lessons to Teach Your Kids About Money & why its so important

Hemant Beniwal

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March 21, 2013

26

10 Lessons to Teach Your Kids About Money & why its so important

Teaching kids about money is a controversial thing — no one argues that you should teach them, but the how is a tougher question. I recently got a mail from one reader & that really disturbed me. Go through the below mail & realize the importance of teaching kids about money……

“How do I convince my sons who believe that there is nothing wrong in enjoying on a credit facility or enjoying more than what we earn today (my elder son says that his next hike can clear the present debt).

Whether right or wrong my sons had education from good school/colleges where the majority were effluent and strikingly rich where as we belong to the middle or lower middle class. My husband stretched himself, rather than went out of the way taking debts for their education with a belief that it is a good investment. Yes my elder one is from xyz (Indian top engineering institute) and younger son is in 3rd year abc(well know engineering institute from south). As my husband expected, one of the sons did get a better job than many of his cousins/friends. But what about his education loan and his spending habits?

The sad part I observed is, their peers/friends are from rich clan and for them many luxuries are necessities to maintain their “class”. My sons being in their company/friendship/continuing them as friends, also got almost similar attitude and are unable to adjust to our “class”. As a result their expenditure is more than our “class” . My elder son who earns nearly 38,000 spends more than 20,000; whereas my nephew who earns just 30,000 spends only 10 to 12 thousands and able to save more.

I am not able to make my sons understand that how much one saves is more important than how much one earns.”

Definitely there are solutions to this situation but still prevention is always better than cure. Go ahead & prepare your kids for wild financial world.

Four Guiding Principles:

Educate yourself. You can’t teach something you don’t know about yourself. Learn as much as possible about budgeting, about saving, about investing, about cutting expenses, about reducing debt. Armed with knowledge, you’ll be a good teacher.
Set a good example yourself. It’s one thing to tell your kids something, but if you are doing the complete opposite, they’ll learn more from your actions than your words. To teach them about controlling spending, you have to do so yourself. Lead by example.
Teach them one habit at a time. Your kids are not going to become skilled financial planners overnight, or in one month, or even in a year. Your goal should be to teach them these lessons over the course of their childhood and adolescence. So teach one thing at a time, until they’ve learned the skill, and then move on to the next. There’s no rush.
Let them learn by doing. You can’t teach by telling. You have to tell (briefly), then show, then let them do. Let them make mistakes. And then talk about those mistakes. Soon enough, they’ll learn why those mistakes were actually mistakes, and if you set it up right, they’ll learn better habits on their own, by doing.

10 Lessons to Teach Your Kids About Money & why its so important Click to Tweet

So with those principles to guide you, here are 10 valuable lessons you can teach your kids about money.

This article is from ZenHabits (uncopyrighted) one of the top blogs in world. This is run by Leo Babauta – he writes on simplicity, health, goals, motivation & inspiration.

Do you feel you got an adequate financial education growing up? Are you making any conscious effort to teach your kids about money?

What Bankers Can Do to Sell Insurance?

Mis-Selling

Hemant Beniwal

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March 15, 2013

34

Next time when a terrorist activity hit any of our cities, I am definitely going to part blame the role of Indian bankers. The yesterday event (sting operation by cobrapost) will definitely catch the attention of these extremist organization and we all know these outfit are searching ways to route or invest unaccounted money in countries like US, Europe and India. I will not be surprised if they start lifting these so call experts in converting “black to white“ to provide them these “specialized” services !!! {check few slides at the end of this post & you may understand why this happen}

Read – Banks are mis-selling or Bankers are mis-selling

Are banks responsible?

After the story broke out, the three banks involved released statements of internal probe and audit and the sentence common in all the three statements issued by banks, was that the bank will continue to work under the regulations and process as laid by the regulator. But does the regulator tell Banks to get involved in converting black money to white?

Well it was not a single bank? Three top private banks are involved. It is not that bankers from Delhi or metro are speaking this language. We hear the same story of “opening the multiple account, deposit cash, we make the DD and invest in Insurance for more than 7 years story”.

Do the bank need more accounts or is it running behind the DD issuance commission? No my friend… the banker is behind only one thing “SELL INSURANCE”. It is not a hidden fact that out of all third party products the bank sells, insurance gets them the highest commission.

What Bankers Can Do to Sell Insurance? Click to Tweet

And we all know this is JFM (Jan-Feb-March). The closing time for most of the banks and insurance companies. Any big ticket in quarter four means- a handsome commission, a good performance reviews and may be a trip or gift from the insurance company.

So unfortunately it is the BANK who is not mis-selling…. But the BANKER who is mis-selling. But on the next thought the banker is a representative of bank, so bank also has to make an environment so that the employee is unbiased and loyal towards his job and does not spoil the name of the institution. You can check cobrapost shocking videos here.

Must read –Bank locker the games bankers play

The insurance focus of Banks

I have worked with bankers all my life and still have lot of friends in this circle and based on what I see, the banks have a hidden work culture which is promoted by the banks internally to garner insurance revenues. This culture can be visible if you attend the morning briefing of branches. The front desks person who has sold most number of policies is honored and “hip hip hurrayad”. The targets for the day are rolled out. Sometime “Login Day” is announced and people are pushed to get sign ups. The personal bankers are motivated to visit customer’s home after cash hours with the same agenda of getting insurance sales.

They are also made to talk in pleading language like “sir meri naukri chali jayegi” or “uncle appki bachhi hun, please dhyan rakhiyega”. The banks allow or sometime give additional desk to the person of the insurance company in the branches, the sole job of this person is to increase insurance sale by pressure. And all this happens in the name of the “tie up” or “partnership.” I cannot give you a sting, but culture has gone so low that the bankers also decide, will a call from a male employee is sufficient to get an insurance policy or does he requires a plead in a female voice. The bankers who give more revenue from insurance are blue eyed and their career is considered to be relatively safe. If you cannot sell insurance in a private bank, the bank HR makes you leave the organization very soon.

Read – Confession of ex-banker

Do all banks do it? Yes mostly all private banks and now a few public sector banks have also started doing this.

So when they say “we will carry out audit to see if the rules have been violated”… we all know no rules have been violated as there are NO RULES when it comes to insurance sale. The scapegoats will be penalized and bank will continue to promote the same internal culture (sic).

WHY this happen?

In December 2012 I attended Financial Planning conference & got a chance to hear experts from Canada, Australia & Malyasia. I attended one day pre-confrence workshop “Global Best Practice for Financial Planners” by Shawn Brayman from Canada – he is a well know name in Financial Planning profession due to his research & FP software company ‘PlanPlus’. He shared couple of shocking things during the day – sharing couple of presentation slides which will open your eyes.

Where is the Bubble? (US)

Financial Vs Real Economy (US)

India is the same

Incentives determine advisors behavior (Shawn in Red Tie)

How is that possible

Do share your thoughts and your interactions with banker friends if you have. Also share if you have been a victim of banks demand for insurance. Let’s open few more cases to the world.

Identifying if you are a shopaholic and 11 ways to curtail impulse spending

Family Finances

Hemant Beniwal

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March 12, 2013

15

Identifying if you are a shopaholic and 11 ways to curtail impulse spending

“yaar bore ho raha hun… chal shopping ko chaltey hain…” (I am bored… let’s go shopping)

“Dosto salary aagai hai… chalo time to shop” (friends, I got the salary, let’s go shopping)

“oh my heart is sad today… shopping will make it better”(I am feeling low, shopping will heal)

Exam khatam… pass ho gaya… she said yes… bought new bike… engagement ho gai… sister ki shadi hai… pahli salary mili…. Weekend hai…. bonus mila… mummy aai… saasuji gai …. Any occasion… chalein shopping? (exams over, got good grades, got a girlfriend now, bought new bike, got engaged, sister’s wedding fixed, got first salary, it’s a weekend, got bonus or a raise, mom arrived, mom-in-law went … be it any occasion, let’s just go shopping)

Are you of this nature? My serious submission – you need help.

Read: Budgeting – First Step of Financial Planning

Why am I poking nose in something which you love the most

See I am a financial planner and whatever comes in way of your financial well-being needs to be addressed. It has been found that majority people lose track of their monthly budget just because they increase their shopping bills. The first starting of a debt trap is often the shopping habits. Shopping addiction is directly proportional to making impulsive and non-planned buying decisions. Many people know this but they cannot resist themselves. The addiction is so much in the blood that they always prefer to live in a mode of denial. Well let’s confront this today, as it pains when I see my friends transferring investment funds to settle credit cards or investing not at all or ignoring their long term plans.

Identifying if you are a shopaholic and 11 ways to curtail impulse spending Click to Tweet

How do I know that I am an impulse buyer or shopaholic?

It’s all in the behavior…

Does shopping give you a high? You feel momentarily happy after you shop? The word “sale” makes you glowing? Or you maintain a “yearly sale tracker” and you exactly know when “robber stop” or “decentral” or “wife style” will have their 70% off days!!!

Your credit card statement shows that you visit malls daily/weekly. Your wardrobe is full of cloths with buying tag still attached. You even dump a few shopping bags to avoid being caught by your spouse. For you entertainments mean visiting a nearby mall and check your regular counters for discounts. You even track when the display is being changed by the shopping outlet. These typical behaviors convey that you have developed an addiction to shopping and you are taking impulsive buying decisions.

How to be a Smart Shopper & drop the habit of Impulse Buying

There are few steps to follow. Some of these are strict and others require that you take assistance also. Hence a plan and determination is required to put these measures to use:

1) Pay by cash, no credit card to be used. In case you are tempted to use credit card leave it at home or hand it over to a responsible person.

2) Make a list of purchases and then only step out to shop. Make a rule that buying will be done when you need a replacement. So buy only when your TV is beyond repairs or you are really short of dresses in your wardrobe.

3) Do not get lured, tempt and track sales or discounts. This does not mean that you will not shop during sale season. If you are getting three things for the price of one and all three will be utilized, it makes sense to shop. But important is that you put the bought things to use.

4) Do not develop costly hobbies for example collecting handbags, watches, shoes, phones etc.. Let people from Bollywood and celebrities to have privilege of having these addictions.

5) Make a 30 day think-before-purchase rule. If anything has wooed you completely and you wish to buy, give a break of 30 days. Think if it is really useful. It should be a need and not a want. And if a want it should be justified on usage parameter. It is not necessary to keep a 30 day gap, as you may use your own 10 days, a fortnight, a weekend think-before-purchase rule. The essential is that you follow this rule.

6) Fix an amount for shopping. Each month fix an amount on shopping. Make sure that you will overboard this limit. If you do so, you should pay a penalty, for example investing a certain amount.

Read: Budget for savings and not spending

7) Formulate ways to stop the “urge to shop”. For example do not go to malls. Instead shop at roadsides shops or going to window shops when the stores have closed for the day. Leave your wallet at home. Do not watch shopping channels. Do not surf shopping websites. Deactivate from mailing list of e-catalogues and online stores. Mute TV during commercial break and talk to family members till your favorite soap is back on air. Send someone else to shop. Simple tricks save a lot.

8) Make a rule that “store is not a hangout”. Whatever mood you are in, but store or shopping is not the idea or place to vent out your emotions. So shopping is to be done when you are in a neutral and sound mind and not influenced by emotions like achievement, success, failure, break up, lost or found.

9) Shop with someone who is responsible, mature and open to stop and contradict you. Everybody has a partner who is equally important and responsible. Your irrational shopping may be co-damaging your mutual goals. Take that same partner to shop with you.

10) Be sensitive to the feelings that surface when you do an irresponsible shopping. It is ok if you feel low, insensitive and immature. Honor what you feel, make up your mind that you will not repeat this behavior.

11) Do not miss the bull’s eye i.e. your financial plans and long term goals.

We all face this addiction to some extent. Do you have any memory when you felt guilty? Or was there a time when you really made and endeavor to come out of this bad habit and got successful? Kindly share your story in the comments section.

RGESS Savings Scheme and the tail wagging the dog

Tax Planning

Hemant Beniwal

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January 10, 2013

24

RGESS Savings Scheme and the tail wagging the dog

Last year a very complicated scheme called the Rajiv Gandhi Equity Savings Scheme (RGESS) was launched with the motive to encourage first time investors to invest in the stock market.

Based on the scheme, you could get a maximum tax deduction of Rs. 5,000 if you invested Rs. 50,000 in certain specified stocks or mutual funds.

Earlier this month, SBI filed its prospectus for their RGESS mutual fund and then IDBI followed suit as well.

Both these products were structured quite differently as one was an open ended fund, and other was a close ended fund, and I got so immersed in trying to understand, evaluate and analyze these two funds that I lost the forest for the trees.

Ultimately, you will get a tax deduction of a maximum of Rs. 5,000 by investing Rs. 50,000 in any RGESS approved scheme, and anyone who is familiar with the share market will tell you that 10% can be wiped out in a matter of days or even hours, so to that extent is it a wise choice to invest in shares or mutual funds to get this tax benefit?

For most people the answer to this question will be no, but unfortunately most people won’t be asking this question.

It’s just the way it has always been when it comes to financial products, and everyone is to be blamed for this.

RGESS Savings Scheme and the tail wagging the dog Click to Tweet

As soon as a new product is launched – news stories start appearing about it, people start inquiring about it, bloggers start blogging about it and very soon the focus is on the product instead of your financial need.

Why invest in an IPO when you can invest in the thousands of stocks that already exist in the market and why buy the latest insurance product from LIC when hundreds of similar products already exist in the market?

I think we get so carried away with the frenzy of new product launches that we forget to look at all the similar options that already exist in the market and can serve the need better.

The RGESS example was so obvious once I had spent about an hour or so thinking about it but I think the most common example is of someone asking which will be a good mutual fund to invest in.

That question is so common, even a lot of pros start listing out options as soon as they hear the question instead of asking what the person is trying to achieve. Ultimately mutual funds are just investment vehicles that you own because you want a piece of the underlying asset be it stock, gold or bonds, but often we forget to ask that question.

Back to the question of RGESS, I believe someone who wants to invest in the stock market for the first time, and has exhausted the 80C limit should look around and ask for a product that will get him exposure to equities and if there is any tax benefit – even more better.

But in reality, the way it will work is that you would be told that you can save tax by investing in this new thing called RGESS if you have never invested in stocks before, and as a result you will end up owning one of these mutual funds.

It’s as if the tail is wagging the dog in the entire industry.

This is a guest post by Manshu, who blogs on Personal Finance at www.onemint.com – the views expressed herein are Author’s Personal Views.

If you any questions related to RGESS or any other tax saving instrument – feel free to add in comment section.

LIC New Jeevan Nidhi Review – Pension with Tension

Insurance Planning

Hemant Beniwal

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January 6, 2013

37

LIC New Jeevan Nidhi Review – Pension with Tension

LIC, much like in the past, have started rolling new products in the last few months of financial year. This time it has launched a deferred traditional pension plan LIC New Jeevan Nidhi. Although, changes in pension plan norms by IRDA have deterred many private companies to enter in this market, LIC has continued with its trend. The new product very well complies with these norms and so is assumed to be more cost effective now. But traditional insurance plans have been in the news for their lower returns and so it will be wise enough to review LIC New Jeevan Nidhi before making a decision.

Below are the new norms which IRDA has stipulated in pension plans-

A pension plan may have a life insurance cover i.e. the option to include rest with the company
There has to be a minimum guarantee in the plan for death benefits or surrender
The policyholder will have to compulsory buy the annuity from the same company

Let see how LIC Jeevan Nidhi fares after meeting these criteria.

LIC New Jeevan Nidhi – Basic Features

Minimum Entry Age	20 yrs
Maximum Entry age	60 yrs
Minimum Vesting age	55 yrs
Maximum Vesting Age	65 yrs
Minimum SA	Rs 10000 for regular premium
	Rs 15000 for single premiums
Maximum SA	No Limit
Policy term	5-35 yrs
Premium Payment	Monthly/Qrtrly/Half Yrly/Yrly/Single
Rebates	1-5% as per mode of premium or SA limit

Benefits Payable in LIC Jeevan Nidhi

	Payable to Policyholder/Nominee	Options to the Policyholder/Nominee
On Vesting	SA + Guaranteed Additions + Revisionary Bonus + Final Bonus (If any)	1. Purchase an Immediate Annuity2. Purchase a new single premium deferred pension plan
On Death	First 5 years- SA + Guaranteed AdditionsAfter 5 years- SA + Guaranteed Additions + Revisionary Bonus + Final Bonus (If any)	1. Lumpsum2. Annuity3. Lumpsum & Annuity

Guaranteed Additions– LIC has kept guaranteed additions only for first five years and at the rate of Rs 50 per thousand in Jivan Nidhi

Bonuses- Since there is guaranteed additions for first five years, the bonus i.e. participation in profits starts from 6^th year and paid as per the policy terms

LIC New Jeevan Nidhi Review - Pension with Tension Click to Tweet

Surrender Value in case of LIC New Jeevan Nidhi

LIC, much like in other products, offers here also either a Guaranteed Surrender value at 30% of all paid premiums or a higher special surrender value as per its discretion. The only difference in this product is that guaranteed additions are also paid along with this surrender value and the company gives an option to the policyholder to utilize these proceeds to purchase an annuity (Immediate or Deferred).

What You Actually Earn in New Jeevan Nidhi ?

Returns

The net returns in traditional products are lower or at best equals inflation due to the cost associated. In this product also the net yield to investors is not very high which is surely a deterrent for accumulating a good corpus.

IRR as per LIC New Jeevan Nidhi Illustration

Annuity – Final Destination

Since the new norm specifies that the annuity will have to be purchased from the same company, LIC has illustrated the annuity received by any policyholder on basis of today’s rate.

To Learn More about Annuity Concept Read: LIC Jeevan Akshay VI – Immediate Annuity Plan

Annuity payable for life based on above illustrated corpus at vesting age

Corpus	Annual Annuity Payable
125000	11688
233500	22533

These are the current annuity rates of LIC immediate annuity product Jeevan Akshay VI


Age last birthday	Yearly annuity amount under option
Age last birthday	( i )	( ii ) (15 years certain)	( iii )	( iv )	( v )	( vi )	(vii)
30	7190	7160	6890	5250	7080	6970	6860
40	7510	7440	6930	5610	7310	7120	6890
50	8140	7950	7000	6280	7760	7420	6930
60	9350	8790	7110	7530	8640	8030	7010
70	12080	9830	7260	10220	10560	9370	7130
80	17880	10440	7480	15890	14600	12340	7290

Should you Consider LIC New Jeevan Nidhi?

The product fails to attract due to below facts:

The net return to the policyholder is not even matching inflation of 7% which has been the case with most traditional products. Isn’t it a much higher risk than investing in equities through SIPs where you are able to generate returns higher than inflation? Now a product like NPS have much higher flexibility and possibility of generating superior returns when compared with any traditional pension plan.
The annuity rates will change and there may be companies which may offer higher. You would like to avail the maximum and so a boundation from the same company may end up with dissatisfaction in later years.
The annuity rates shown in the tables consider that the pension is given to the policyholder only and no return to the nominee/spouse after his/her death. These will lower down if any such option is availed. Also, these rates are higher at higher age and so any selection of lower vesting age will lower the annuity amount substantially.
Higher life coverage add to the mortality cost. If one has a term insurance then this feature actually is an additional expense one is paying to lower the accumulation.
To differentiate the product from other companies, LIC has introduced many options like buying another deferred pension plans even from the surrender value. All such options fail to attract when the accumulation is not enough to meet the retirement years growing expenses.

Retirement years are golden years of life where you aspire not to work and spend more time in social activities or with grand-children’s. For this achieving financial independence is very important and it very much hinges on how much you are able to accumulate for your post retirement needs. A long deferred period needs the exact identification of the requirement first. Then only you can evaluate an alternative to see whether it matches yours needs. LIC is surely the brand name but weigh your options efficiently before you get attracted to the fancy names of any product.

Review of LIC Jeevan Nidhi is done by Jitendra PS Solanki, CERTIFIED FINANCIAL PLANNER^CM– the views expressed herein are the author’s personal views.

If you have any questions related to pension products or any other insurance policy – feel free to add in comment section.

LIC Flexi Plus ULIP Review – Not So Flexible

Insurance Planning

Hemant Beniwal

-

January 3, 2013

17

LIC Flexi Plus ULIP Review – Not So Flexible

LIC has its unique way of wishing “happy new year” by launching new products. This time LIC has come up with 2 new products – A Unit Linked Product (ulip) “LIC Flexi Plus” and a traditional pension policy “New Jeevan Nidhi”. Timing of Launch of the policies is also due to sharp business sense among LIC management as they understand Indian Psyche very well. They know that come what may we‘ll start looking for tax saving options in the months of January February only and If the new product is launched by LIC then people will definitely give it a consideration and deserving attention. Through in this article I have reviewed LIC Flexi Plus and try to figure out how this is different from other options available for investors.

LIC Flexi Plus – Summary

It is a normal Unit linked plan launched as per the new ULIP guidelines by IRDA. It has very less charges as compared to ULIP’s previous versions. The minimum premium paying period is 5 years. The Premium payment after deducting the allocation charges gets invested in a selected investment option and you will get the fund value on maturity or surrender (applicable after 5 years). Fund value totally depends on the performance of the investment option and will be calculated as No. of units available on surrender/maturity after deducting all expenses, multiplied by NAV. If you discontinue the premium payment before 5 years than the fund value in the year of discontinuance will be transferred to a discontinued fund after deducting the discontinuation charges. This fund will earn you saving bank account interest rate of State bank of India. As LIC Flexi Plus is a Unit Linked Insurance plan, so it has some insurance features too. It offers sum assured as 10 times annual premium or 105% of total premiums paid whichever is higher. Please note that it is mandatory to have 10 times of Sum assured on your premium payment to get section 80C tax benefit.

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LIC Flexi Plus – Key benefits

LIC Flexi Plus – Discontinuation Charges

Where the policy is discontinued during the policy year	Discontinuance charges for the policies having annualized premium up to Rs. 25,000/-	Discontinuance charges for the policies having annualized premium above Rs. 25,000/-
1	Lower of 15% * (AP or FV) subject to a maximum of Rs. 2500/-	Lower of 6% * (AP or FV) subject to maximum of Rs. 6000/-
2	Lower of 7.5% * (AP or FV) subject to a maximum of Rs. 1750/-	Lower of 4% * (AP or FV) subject to maximum of Rs. 4000/-
3	Lower of 5% * (AP or FV) subject to a maximum of Rs. 1250/-	Lower of 3% * (AP or FV) subject to maximum of Rs. 3000/-
4	Lower of 3% * (AP or FV) subject to a maximum of Rs. 750/-	Lower of 2% * (AP or FV) subject to maximum of Rs. 2000/-
5 and onwards	NIL	NIL

Also please note that discontinued fund will be charged with 0.5% p.a of Fund management Charges

LIC Flexi Plus – Investment Funds

Fund Type	Investment in Government / Government Guaranteed Securities / Corporate Debt	Short-term investments such as money market instruments	Investment in Listed Equity Shares	Details and objective of the fund for risk /return
Debt Fund Mixed Fund	Not less than 60%Not less than 45%	Not more than 40%Not more than 40%	NilNot less than 15% & Not more than 25%	Low riskSteady Income –Lower to Medium risk

Should you invest in LIC Flexi Plus ULIP?

The decision is purely financial and I would like to leave this with you, with the following thoughts.

What if after 2 years you feel that none of the investment fund is performing as per expectation? Or you would not be able to pay further for personal reasons then would you be comfortable enough in leaving the fund in discontinuation fund earning you saving bank a/c return?
Debt investments perform differently in rising, falling and stable interest rate scenario. There are other debt instruments for short/medium/long term horizon available, which are more actively managed and have potential to deliver much better returns and having flexibility to switch as and when required.
Even if you chose “Mixed fund” option for parking of funds (15%-25% equity exposure) in LIC Flexi Plus, would it be wise to invest with a 10-20 years horizon?
Even though there is some sort of government backing to LIC but government interference has its own negative factors.
I have presumed that readers of TFL are adequately insured and are convinced on buying term insurance… and if this is the case then would it be wise to pay more mortality charges.
With the reduction of charges some may argue that ULIPs have now become cost efficient than Mutual funds in the long term, which is true to some extent. Personally I have always found the structure of ULIP very attractive. But on the other side I want investments to be flexible enough, on which cost effective, immediate and comfortable action can be taken as and when required and ULIP does not give me that flexibility. I mean I can go with index funds, now days there’s option of direct plan, direct stocks, Bonds, Fds or whatever investment instruments suits my risk appetite, goals, tax profile etc.

Many people are of the view that Financial Planners are against ULIPs but this is not true. We are not against or in favour of any product but it actually become difficult for us to map the goals of clients to such non flexible and costly products (though for few years). Anyone who’s having their basic financial planning, investments and goals intact can do anything with the surplus he’s left with if any. But it’s always advisable even to use that surplus with caution to factor in the uncertainty risk in financial plan.

Review of LIC Flexi Plus is done by Manikaran Singal, CERTIFIED FINANCIAL PLANNER^CM– the views expressed herein are the author’s personal views.

If you have any query related to LIC Flexi Plus or any other insurance product – feel free to add in comment section.

Best Mutual Funds to invest in 2013 – Equity & Debt

Mutual Fund

Hemant Beniwal

-

January 3, 2013

224

Best Mutual Funds to invest in 2013 – Equity & Debt

Well the newspapers and television are full of features recalling few things like “Best of craziest Bollywood moments of 2012” or the “Best of wardrobe malfunctions of 2012” or the “Best of divorce/separation of 2012”, I will not make an adventure to test your oomph level and will draw your focus on a serious affair i.e. investments. Each year I try to focus on what next in investment domain. Hence my first post of 2013 shall be on “Best Mutual Funds to Invest in 2013 in India”.

I have covered top schemes of Equity as well as Debt funds so that you can think of building a proper portfolio. You can also download consolidate factsheet of equity funds from the end of post & also check technical ratios sheet of the selected funds.

https://www.retirewise.in/2013/01/best-tax-saving-mutual-fund.html

Before we leap same old age word of wisdom. Do not get carried away by simple past performance (Oh! If you consider past performance you will not consider investing in equity funds). Decision to invest should only be taken:

In congruence to your financial goals.
As per your risk appetite.
As per asset allocation process.
In case you are naïve, take help of a professional in “professional way” (read pay his due advisory fees)

Mutual Fund… So here we go…

Last year we did some similar exercise “Best Mutual Funds to invest in 2012 in India” [you should quickly go through this to understand how fund categories are defined] but last year there was single criteria that fund should be five star rated by value research. This year we have added few more filters.

Selection Criteria of Best Mutual Funds to invest in 2013 – Equity

Value Research 4 or 5 star Rating

Ratings can give you first level check to fund selection but you should understand that they are based on past data & can’t predict future.

Fund Size

I have considered Rs 2000 Crore as minimum fund size for equity funds.

Alpha (Jensen) is positive in 3 years

This is a risk-adjusted measure used to gauge the extent to which a manager has added value to the returns that could have been expected from a benchmark portfolio, while taking into account the fund’s sensitivity to that benchmark.

So this is a test of whether a fund has achieved a better performance than its Beta would suggest: a positive Jensen Alpha indicates an active management style with superior stock-picking ability; a negative figure is produced if returns are falling short of the adjusted benchmark return.

In simple words Jensen’s Alpha will tell you – has your Mr Fund Manager contributed some returns.

Fund Manager Tenure

I have avoided funds if there is change of fund manager in last 1 year. Same applies to L&T Funds which were earlier managed by Fidelity Amc. Read – What should investors do with Fidelity Funds?

Best Mutual Funds to invest in India – Equity

I repeatedly keep saying that it’s not about fund selection which will generate returns – its more about your behavior. “Investing is not a Number Game it’s a Mind Game.” I shared a post in May 2012 “Its tomorrow that matters” – read comment section. You can clearly see people were in panic & what happened after that can be seen in First Graph.

Last year performance of Equity Funds – Category Wise

10 years performance of Diversified Equity Funds

1 year rolling chart of Diversified Equity Funds

Best Mutual Funds to invest in 2013 – Large Cap

Best Equity Large Cap Funds	1m	3m	6m	1yr	3yr	5yr	10yr
ICICI Prudential Focused Bluechip Equity	0.49	4.60	13.22	26.79	10.43
Franklin Templeton Franklin India Bluechip	1.40	5.84	12.96	26.79	8.42	4.05	26.08
DSP BlackRock Top 100 Equity Regular	1.67	6.29	13.52	30.29	6.84	3.30
Category Average	0.70	3.85	11.79	25.65	4.17	-0.34	18.41

Best Mutual Funds to invest in 2013 – Large & Mid Cap

Best Equity Large & Mid Cap Funds	1m	3m	6m	1yr	3yr	5yr	10yr
UTI Opportunities	0.37	4.62	13.01	27.28	10.13	6.11
HDFC Equity	3.18	6.09	13.83	34.14	8.30	5.61	29.11
HDFC Top 200	2.42	5.57	13.37	32.43	7.83	5.91	29.37
Birla Sun Life Frontline Equity	1.95	7.75	18.38	36.07	7.57	4.08	25.40
Category Average	1.68	5.39	14.13	28.53	5.01	-0.37	19.98

Best Mutual Funds to invest in 2013 – Multi Cap Funds

Best Equity Multi Cap Funds	1m	3m	6m	1yr	3yr	5yr	10yr
Reliance Regular Savings Equity	1.77	8.16	23.26	46.01	6.93	2.40
DSP BlackRock Equity	2.07	6.98	16.16	33.26	6.65	3.06	29.56
Sector Average	2.23	6.49	15.68	31.61	5.55	-0.15	24.00

Best Mutual Funds to invest in 2013 – MidCap & Small Cap

Best Equity Midcap Funds	1m	3m	6m	1yr	3yr	5yr	10yr
IDFC Premier Equity	2.12	9.32	20.25	40.02	14.89	7.51
HDFC Mid Cap Opportunities	2.93	4.87	15.73	39.62	14.65	7.27
Reliance Equity Opportunities	2.42	7.01	19.01	47.35	14.63	6.77
ICICI Prudential Discovery	3.42	7.92	17.87	46.01	12.45	8.65
Category Average	2.53	7.81	18.52	38.87	7.18	-1.74	22.75

Discrete Performance of Diversified Equity Mutual Funds

This may help you in gazing consistency of these funds. Only one thing is consistent that equity will give inconsistent returns & that’s the way equity works. If you expect equities to generate 15% every year in a straight line – it’s your mistake. As someone rightly said “Investments don’t do mistakes – investors do.”

I have not covered Sector Funds here as I don’t think there is much point in talking about the same – if someone want to know why, he read this article – Sector Fund guide. Also download equity fund factsheet from end of the post.

Best Mutual Funds to invest in 2013 – Balanced Funds

Filtering Criteria of Balanced fund are similar to diversified equity funds – only change is I have considered funds with asset size above Rs 500 Crore. You can also read this article – Balanced Mutual Funds – best of both worlds.

Best Balanced Funds	1m	3m	6m	1yr	3yr	5yr	10yr
HDFC Balanced	2.20	2.46	9.80	26.56	12.41	9.21	19.43
HDFC Prudence	3.83	5.06	12.73	30.08	11.42	8.00	25.90
Reliance Regular Savings Balanced	2.11	4.69	14.60	35.12	10.03	8.35
Birla Sun Life 95	2.55	5.50	14.40	25.63	8.99	5.31	21.87
Category Average	1.80	4.53	12.13	25.88	7.05	3.06	16.47

Best Mutual Funds to invest in 2013 – Debt Funds

Rational behind selection of these funds is just five star rating from value research & Asset under Management of Rs 100 Crores. To understand Debt Funds – read Bond & Debt Fund Guide.

Best Mutual Funds – Income	1m	3m	6m	1yr	3yr	5yr	10yr
Birla Sun Life Medium Term	0.76	2.22	5.31	11.15	8.78
Franklin Templeton India Income Builder Plan A	1.19	2.62	6.46	12.28	8.89	7.66	6.11
Religare Active Income Plan A	1.06	2.23	5.28	10.46	8.57	5.73

Best Mutual Funds – Short Term	1m	3m	6m	1yr	3yr	5yr	10yr
JP Morgan India Short Term Income	0.85	2.37	4.88	9.67

Best Mutual Funds – Ultra Short Term	1m	3m	6m	1yr	3yr	5yr	10yr
Franklin Templeton Templeton India Low Duration	0.63	1.97	4.16	8.93	7.29	6.61	5.45
JM Money Manager Regular	0.78	2.25	4.76	10.25	8.64	7.90
JM Money Manager Super	0.77	2.25	4.75	10.22	8.77	8.52
L&T Floating Rate	0.73	3.06	5.52	10.67	8.36	7.24
Peerless Short Term	0.70	2.22	4.90	10.45
Taurus Short Term Income	0.84	2.45	5.09	10.55	8.46	6.34	5.30

Best Mutual Funds – Gilt Short Term	1m	3m	6m	1yr	3yr	5yr	10yr
SBI Magnum Gilt Short Term	0.86	2.19	4.42	9.19	7.50	7.08	6.32

Best Mutual Funds – Gilt Medium & Long Term	1m	3m	6m	1yr	3yr	5yr	10yr
Kotak Gilt Investment Regular	1.64	2.62	5.03	14.63	8.79	9.53	7.44

Best Mutual Funds – Hybrid Debt (MIP)	1m	3m	6m	1yr	3yr	5yr	10yr
Birla Sun Life MIP II Savings 5	1.29	2.48	6.18	11.72	8.24	10.60
HDFC Multiple Yield Plan 2005	1.29	2.35	5.74	11.84	9.20	9.14
Reliance MIP	1.49	3.38	7.66	17.21	8.31	11.01

Links: You can download consolidated factsheet of equity funds from here & can also check technical ratios in these sheets.

You should also read – Secret of achieving high returns

Personal Disclaimer – I am not suggesting you any of these funds – you should consider “Best Mutual Funds to invest in 2013 in India” as a random list of funds.

Disclaimer: Mutual Fund Investments are subject to market risks. Please read the Scheme Information Documents and Statement of Additional Information (SID & SAI) carefully before investing.