Hirannya

Author: hirannya

  • 15 Things Your Financial Advisor can do for You – Part 1

    15 Things Your Financial Advisor can do for You – Part 1

    [Inspired and in part taken from JAS Wealth’s eBook of the same name]

    (1) Do you have a budget? Do you stick to it?

    It’s a simple statement which can be made using a pen and paper, an Excel worksheet, an App or anything similar you can imagine. The idea is to bring a pattern to a chaos named family budgeting. After checking out lots of tools – online and offline – we found one simple Excel sheet that you can use to maintain an account of your income and expenditure. Make a request using comment section below; we will mail that to you. Your adviser can and should work with you to develop a budget, one that suits you and your lifestyle and will set you on the right path to live the life you want now and in the future.

    (2) Put your debt to work

    There are different types of debt – good and bad. Your financial advisor can explain the difference and make sure that – where possible – your debt is working for you and your future. Sometimes at start of your career, when you do not have much of savings, you have to take a home loan to buy your house. But it is not as simple as that. Do you really need to buy one? If you are the only child of your parents and have a spacious house to live in; you may not need to buy a home just to satisfy your ego, or just because your friend has bought one. If you have moved to a different city for work and are planning to buy a house there – think. What if, you may again change your job and move to a different place? Is rent an option? If buying a home makes sense, then what should be the budget? If you get a higher loan amount sanctioned – does that mean that you should take a higher loan? Your financial advisor should guide you here.

    FA

    (3) Assist you with a savings plan

    The benefits of a good, regular savings plan cannot be stressed enough. How do you start? How much can you afford? What will your short-term, medium-term and long-term goals be? What will your savings milestones look like? As your financial coach, your adviser can help you develop a plan that will work for you and will also help you meet the goals you set together.

    (4) Invest your money

    Saving is one thing and without the discipline of putting something aside it won’t be possible to invest. Investing is something else – investing is making sure your money is working as hard as possible. Where to invest is difficult to know. Your adviser is qualified and has the experience to help you navigate the myriad opportunities available to give you the best options available for you.

    (5) Help you realize your goals

    There is a way to achieving your goals. First is to talk through and understand your goals. Next is to make a plan – the plan should be clear in showing how you are intending to reach these goals. The plan may change over time as your priorities change and goals need to adapt to changes of mind or circumstances. Your financial adviser will be able to work with you in adapting and reshaping your plan to meet these new goals. But without a plan in place reaching your goals will be much more difficult.

    To be continued…

  • How to write a Will in India

    How to write a Will in India

    Writing a Will is very important. Below are 12 important points to take care of while writing a Will:

     

    1. A Will can be made by anyone above 21 years of age in India. You can make the Will on plain paper in India. It’s not legally necessary to make the will on stamp paper.  

     

    1. If you die without preparing a WILL in India, your wealth will then be distributed as per Hindu Succession Act, 1956 (for Hindus, Jain, Sikhs and Buddhists) or through Indian Succession Act, 1925 (Indians Christians and other religions).

     

    1. When you are dead, there is someone called an “Executor” who will be responsible for dividing your wealth amongst the beneficiaries and he will make sure the whole process is smooth.

     

    1. You can change your Will any time you want to. However, make sure that when you make a new Will, you mention that this Will is the latest and supersedes all earlier Wills.

     

    1. A “Codicil” is a document that amends, rather than replaces, a previously executed Will. Amendments made by a codicil may add or revoke small provisions (e.g., changing executors), or may completely change the majority, or all, of the gifts under the Will.

    Will

    1. Although registration of Will is not compulsory, it Is highly advisable to do so! Registration of any indenture creates a presumption in its favour. After the death of the person who made the Will, the beneficiaries don't get the property automatically. They have to go to the court and get a “Probate”. Only after the court grants you probate can you become the owners of the property.

     

    1. A “Probate” is nothing but a copy of Will, certified under the seal of court. The executor (someone who is responsible to execute the Will) has to file a probate petition in the court of law and if all goes well, the probate takes six months to a year. No right as executor or legatee can be established unless a court has granted the probate of the Will. Probate can be granted only to the executor appointed by the Will. The cost of getting a probate includes legal fees as well as stamp duty on the value of the property being willed. The stamp duty varies from state to state. Probate is very important in case of Real Estate.

     

    1. If possible, have the two witnesses be a doctor and a lawyer. A doctor signing a Will, won’t raise any question of you, being of unsound mind. The lawyer, will vet the will and make sure you don’t make stupid mistakes at the time of writing and signing it.

     

    1. The attesting witness and his or her spouse should not be a beneficiary under the terms of your Will. This might create vested interests and sometimes make your Will invalid. Also, make sure the witnesses are younger than you and not very old as your will might be in effect for several years.

     

    1. In case of Hindus, it should be clearly stated if the property is inherited or not, because it makes a huge difference, as no ancestral property can be assigned to any person through a Will. All rights on inherited property are acquired by birth. So if you inherited a property from your Father, you cannot say in a Will, that you want to assign it to person X only! It will go to all your legal heirs as it is “Inherited”.

     

    1. A Will must always be dated and if more than one Will is made, the one with the latest date will nullify all the previous ones. In fact, there should be a statement in your Will, nullifying all other previous Wills. The pages should be numbered to avoid fraud.

     

    1. The value of assets often fluctuates, so it is better to mention how much each beneficiary will receive, in percentage terms rather than absolute numbers. Unless it is pure cash.

    How should a Sample Will Template look like? Below are two images, which you can follow:

    Sample-Draft-of-a-Will-001 Sample-Draft-of-a-Will-002

  • NPS – 10 Point Guide

    NPS – 10 Point Guide

    Off late, lot of inquiries are coming in relation to NPS (National Pension System). We would be happy to answer them individually. But here is a quick 10 point guide in regards to the same. This may answer few of your doubts. But if the below guide does not answer your query, please mention the same using comment section below this article. We will surely get back. Here you go –

    NPS1

     

    1) NPS Contribution can be made by all of us voluntarily or can be made as part of your salary structure i.e. by restructuring your CTC (Cost to Company) involving your employer. Please note that NPS contribution is mandatory for govt. employees joining service on or after 1st January 2004.

    2) Contribution, when part of salary structure, is capped till 10% of your (Basic +DA).

    3) Voluntary contribution or employee’s contribution of amount up to Rs. 1.50 lakhs is available for tax deduction U/S 80CCD(1), which is part of overall 80C limit of Rs. 1.50 lakhs.

    4) From 1st April, 2015, an additional amount of Rs. 50,000 investment in NPS can be claimed for tax deduction U/S 80CCD(1B). This is over and above 80C limit of Rs. 1.50 lakhs.

    5) The employer’s contribution (this is basically part of your CTC only. After restructuring your CTC gets reduced by the same amount.) falls U/S 80CCD(2) and this amount can also be claimed beyond 80C limit.

    NPS2

    6) Under NPS two investment choices are available – Active choice and Auto choice. Under Active choice, three options are there – E, C and G. Under asset class E, investments are predominantly in equities (maximum up to 50%). Under asset class C, investments are into fixed income instruments other than GOI securities. Under asset class G, investments are in GOI securities. Under Auto choice, investments will be made in a life cycle fund in a pre-defined portfolio based on your age.

    7) Maturity amount is taxable – not only gain, but the entire maturity amount.

    8) Maturity of Tier-I a/c of NPS will happen at the age of 60 only. At least 40% of the maturity amount has to be used to buy annuity. If amount are withdrawn before age 60, then 80% of the maturity amount is to be compulsorily used to buy annuity only.

    9) E, C and G asset class portfolios are now being manged by ICICI, Reliance, Kotak, HDFC, UTI, LIC and SBI Pension Funds. Switch between scheme and fund manager is possible.

    10) NPS is administered and regulated by PFRDA (Pension Fund Regulatory and Development Authority)

     

  • Risk – What is Important?

    Risk – What is Important?

    In its “Investment Advisers Regulation” SEBI has mentioned the following –

    Investment Adviser shall ensure that, it obtains from the client, such information as is necessary for the purpose of giving advice, including Risk Appetite / Tolerance.

    We are following the above guideline strictly.

    But at the same time we strongly believe that there are more to it. As far as Risk Appetite / Tolerance is concerned investors are mostly classified  in three broad groups – Conservative – Moderate – Aggressive. But such ‘One size fits all’ strategy rarely works. Let us consider a few case studies –

    Risk

    (1) When ‘Risk Profiling Questionnaire’ is given to Mr. Sumit, aged 35, employed in an IT MNC, his answers revealed that he is a conservative risk taker. He wants to avoid equity, direct or indirect, as an asset class from his portfolio. His preferred assets are fixed return products. Now when his retirement goal is being planned it is found out that to achieve the goal following scenarios are there –

    Current Age – 35; Retirement Age – 60; Life Expectancy – 85; Household & Lifestyle Expenses – Rs. 30,000; Inflation – 7%;

    (a) Monthly savings or SIP required is Rs. 11,023 when expected return from investments is 15%.

    (b) Monthly savings or SIP required is Rs. 19,030 when expected return from investments is 12%.

    (c) Monthly savings or SIP required is Rs. 26,947 when expected return from investments is 10%.

    (d) Monthly savings or SIP required is Rs. 37,596 when expected return from investments is 8%.

    (e) Monthly savings or SIP required is Rs. 51,594 when expected return from investments is 6%.

    Now, current monthly investible surplus in Mr. Sumit’s case is Rs. 20,000. The goal is also 25 years away from now. Should we recommend him to invest only in fixed return products?

    (2)  When ‘Risk Profiling Questionnaire’ is given to Mr. Amit, aged 35, employed in an IT MNC, his answers revealed that he is an aggressive risk taker. He prefers to invest in equities mostly. Now when his vacation goal, which is due in next 2 years, is being planned – should we recommend him to invest in his preferred asset class i.e. equity?

    The logical as well as right answer, according to us, would be a ‘No’ in both the above cases.

    So in practice, recommended asset allocation does not (only) depend on someone’s Risk Tolerance Level but mostly on the following two factors –

    Risk 2

    (1) Time Horizon along with cash-flow situation – When a financial goal is long term i.e. more than 10 years away from now, and cash-flow situation does not allow investments in low yield generating instruments – one has to go for equities. If invested with caution, and review is done at regular interval – equity as an asset class is capable of beating inflation rate with a good margin.

    But when a financial goal is due in short term i.e. within 5 years, recommending investment in equities is not right, though investor’s risk profile may be aggressive.

    (2) Knowledge –  When you spend time in understanding an investment product i.e. how it works, what could be the best and worst case scenario etc. – risk reduces considerably. There is hardly any risk when a car is driven by an experienced driver, but there is a HUGE risk when that same car is driven by a 6 year old kid who does not know anything about driving. That is why over a period of time, when your knowledge increases of a particular product – your comfort level increases, risk reduces.

    What do you think? Let us know your opinion in the comment section.

  • Budget – How does it matter?

    Budget – How does it matter?

    Just for a moment think that you have been always a prudent investor and you understood very well the power of compounding and impact of inflation on return. Now suppose you always schedule your yearly vacation during budget time. So this means you go to some place far away may be in North-East India or in Galapagos or in Timbuktu island just few days before the budget day. You do not get any internet there, no newspaper, no TV channel. And you come back almost after 7 days since annual budget is presented every year. Do you really think that your overall portfolio would get seriously suffered due this untimely(!) holiday of yours? Time proves – it would not. Chances are it would instead benefit you! As long as you save and invest regularly and your portfolio is designed to beat inflation over long term – you are safe and destined to succeed.

    Budget is of utmost importance for country’s economy and for functioning of government. Yes it mentions changes in tax slabs sometime and sometime also changes in product basket that qualifies for tax exemption. It increases or reduces your post tax income. Budget also mentions that some items will get dearer and some will get cheaper. This also may increase or reduce your expenses. So the changes in tax slab alone cannot decide your cash-flow situation. So many other factors are also there. Hence it can be safely said that your overall family budgeting and discipline will finally matter. Nothing else actually.

    indias-finance-minister-arun-jaitley-budget-2014-15-fiscal-year

    Some of the indirect tax rules may also see changes in this budget. Some industry may get tax sops, some may have to face more tax burden. Changes in excise or customs duty may adversely or favorably impact some industries. There will be surely some knee-jerk reaction for sure and effect can be seen in stock prices of such companies in short run. But again in long run, a company’s stock price is most likely to reflect only how well a company’s management manages cash-flow, generates return on equities, creates value for shareholders. Hence if in your portfolio there is a stock which is well bought i.e. you bought an above average company at a below average price, you are safe and did a commendable job. Stay assured that such buys will always create lot of real wealth for you in long run.

    So the basics remain unchanged. You can skip this budget if you are already on right path. And how the ‘right path’ looks like? See below:

    1) Focus on your family budget. Along with your household and lifestyle expenses also allocate fund for leisure, entertainment, travel but stay within limit. Do not overspend.

    2) Write down your financial goals. Set your targets. Look at the possible scenarios. Check your surplus. Start investing accordingly, and remain rock steady.

    3) Keep emergency fund ready in liquid instruments.

    4) Calculate and then take right amount of life cover.

    5) Depending on the city you live, likely expenses in nearby hospitals – take right amount of health cover (popularly known as medi-claim).

    6) Saving tax is definitely a good idea but not by compromising on life goals’ strategy. If some tax saving investments get fit into your recommended portfolio to achieve financial goals in time, then fine, go for it (early in the financial year) and save tax.

    7) Monitor your investments and review your financial plan at regular interval.

    Mr Bean

    Phew! You are almost done! So pack your bag and go for a vacation. Will see you post budget. Happy journey! 🙂

     

  • Children’s Education & Marriage Planning

    child
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    Most of us have the goal of accumulating enough corpus to meet the funding need for our children’s higher education and marriage expenses and rightly so..

  • Retirement Planning

    Retirement
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    The goal to plan for retirement is common to all of us. We all are looking forward to a happy, secured and satisfying retired life.  This goal is unique in many ways.

  • Financial Planning

    financial-planing
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    Financial Planning is often rightly termed as blueprint or roadmap of your financial journey. This roadmap is essentially lifelong. At Hirannya FinPlan we understand and acknowledge this.

  • Wealth Management

    portfolio
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    When you set out in the journey of creating wealth, managing portfolio of different investment products takes the centre stage. During creation of the portfolio three things that we consider..

  • Estate Planning

    estate

    You work hard to build your assets—your investments, home, personal property—and to provide a level of financial security for loved ones. Then, doesn’t it make sense to work just as hard .