Asset allocation : Importance in financial planning

Asset Allocation : How much Important..?

This word is very familiar in today’s investment world but often the investor or general public confuse or not very clear about it. The main purpose of asset allocation is to minimize the risk involved in achieving a target return or maximize returns with managing risk in prudent way. Asset allocation works on a very famous proverb “Don’t put all your eggs in one basket”. It also play very vital role in any comprehensive financial planning.

We have mainly these types of investment assets:

• Cash
• Equity
• Precious Metal
• Real Estate
• Bonds

Among many of the the asset classes, mutual fund provide the well diversification and professional management. Asset allocation through mutual funds gives you the opportunity to get maximum benefit through diversification and reduce overall portfolio risk. Mutual funds provide better asset allocation in cash, equity and bonds asset class.

Before making any strategy to achieve long term financial goals through asset allocation there are some important points given:

• Asset allocation helps you to make fine balance between return and potential risk. It provides also a disciplined investment plan.

• It also protects your portfolio against declining market through rebalancing and diversification.

• The most important thing is that your personal asset allocation strategy may not similar than others. The financial goal and risk appetite different for person to person. It based on mainly your age, risk tolerance level, liquidity needs and time horizon.

• Please remember that asset allocation does not guarantee the best return but it offers the balanced return with managing the risk which is good enough to take care of your all future financial needs.

• The main aim of asset allocation or financial planning is to achieve your future financial goal and peace of mind. It is not much important that gain a maximum return from the investment but to achieve a peace of mind with achieve a financial goal through risk management.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Newly Launched Inflation Indexed Bonds by RBI

Inflation Index Bonds (IINS-C)

As per promised in the Union Budget 2013-14, RBI has launched Inflation Indexed National Securities – Cumulative (IINS-C) in this month.. The total return on this fund would be depends on fixed rate (1.5%) and inflation rate based on Consumer Price Index (CPI). Interest rate will be compounded half yearly and only paid at the time of maturity.

The maturity period of this fund is 10 year. The minimum investment allowed in this fund is Rs 5,000 and the maximum investment allowed up to Rs 5 Lakh. The prime mandate of these type of bond are to provide the assurance to the investor to beat the inflation.

Most of investors want to know that which is much better option between bank fixed deposit and inflation indexed bond. To understand it better, here we are going to compare tax liability and penalty if we withdraw fund premature.

Premature Withdrawal:

In case of bank fixed deposit, if you redeem before the maturity, there is penalty of 1% on whole accrued interest amount, it means you will get 1% less interest rate from the rate whatever bank offer you at the time of deposit.

In case of inflation index bond (IINS-C), there would be deduction of 50% of last coupon (interest) rate as penalty, if withdraw it premature. During the time of high inflation, IINS-C will give substantially high return than bank fixed deposit. The return on these bonds would be volatile compare with bank FD which gives fix rate of return.

Inflation index bond allow early withdrawal after one year for senior citizen (above 65 year age) and three year for others.

Comparison for Taxation:

Tax will be levied on interest as per tax slab in both cases. In case of bank fix deposit, you pay tax on each financial year on the accrued interest which is only available at the time of maturity.

In case of IINS-C, investor can pay tax in each financial year or pay once at the time of maturity. Income tax department provide both options in accrual products but it should be uniform, not financial instrument wise.

If you do not need interval income and want  to beat inflation in the long run without taking any risk then these bonds may prove for you good investment option.

It is the vast subjective subject. For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Tax deduction in Real Estate

Tax saving opportunities in real estate

Real Estate, it is the very common and traditional investment avenue for the investor. In last 4-5 year, it has performed fairly well against most of asset class. Most of us believe that it is safe and quick return generating asset. In realty, before any investment you should be aware of your tax benefit and tax liability both.

For example, if an individual sell the house within 3 year from purchase, the earlier claimed tax benefit completely reverse and you have to pay the short term capital gain tax as per your income tax slab. So in case if you sell property and think of 50% gain then kindly consider the tax liability also before selling your property. It is applicable to all type of properties whether self occupied property or let out property (LOP) or deemed let out property (DLOP). Let out property (LOP) means that property from which you are earning some income and DLOP means that property has not yet been let out for rent. These tax rules are not applicable on farm house as it is considered as an agriculture land.

If you have property from which you are getting rent income is consider as LOP. For calculate the tax liability, we have to first calculate the net annual value of the property. The following steps help you to calculate the net annual value (NAV) of the property:

Step 1: Compare the municipal value and fair rent. Fair rent can be obtain

            from the rent of properties under similar category. The higher value

            can be used but it should not exceed than standard rent. Standard

            rent fixed as per guideline of the Rent Control Act

Step 2: Actual rent value received from property

Step 3: Choose the higher value from the above 2 steps

Step 4: Calculate rent amount for those months when property was not

            Rented

Step 5: Calculate the difference of the value of step 3 and step 4. It is your

            Gross Annual Value (GAV).

Step 6: We will get the Net Annual Value (NAV), by deducting the paid and

            due municipal taxes from GAV.

In case of multiple properties, the highest GAV value property is considered as self occupied property.

Available tax deduction:

• The principal amount you pay for home loan can be also claimed under section 80(c) within the limit of Rs 1 lakh.

• Under Section 24(a), taxpayer can directly claim the 30% of NAV of the property as a tax deduction for maintenance of the property regardless whether the amount has been spend or not for the maintenance of property. It can be claim for LOP and DLOP property not for self occupied property.

• Under Section 24(b) interest paid for borrowed home loan, taxpayer can claim entire interest in case of LOP and DLOP property. In case of self occupied property there is limit of Rs 1,50,000 for tax deduction interest paid for borrowed home loan. This deduction can be claimed after complete construction of the property.

It is the vast subjective subject. For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Are  you considering guaranteed plan...? Think again!!!

After ULIP out of season, equity market’s return flat the insurer and mutual fund using “Guranteed” word to attract business. I am sure that most of you very often interested with these schemes for shake of your protecting your capital. After sometime you realize that your choice was wrong. I always recommend to all investors that please read whole offer document, search on sites or take advice from any good financial planner before any investment. No matter what is the investment amount.  After all it is your hard earned money so be prudent at the time of investment.

Guarantee is a very powerful world in any sales drive. Insurance companies offer guaranteed payout and insurance cover both to push the sales and get the benefit of investor’s mindset as these products are easily marketable with less effort. Before caught in the sales pitch you should enquire about the return of investment.

It has been very clear now after review of many these types of guaranteed insurance plan often fail to deliver the return even equal to bank fix deposit in the long run. I am not mentioning here the particular name of these types of plan as I don’t want to create any misconception or controversy but you will also believe after the decoding these plans carefully.

Guaranteed income plans are non- participating traditional plan and never disclose the investment costs and return. For example one plan says in the fine print that “ 8 % of the sum assured as payback guaranteed”. Most of the time investor think that he will get return of 8 % on the investment whereas the fine print means that there is guaranteed 8% payout of the sum assured. After many such plan’s analysis the actual net rate of return is 4%.

4% return is not great return in the 10-15 years. If you still happy with these types of return choice is yours.

The cost of guarantee is so huge and opaque that it is very difficult to arrive a net return on the investment. You are not getting only lower return you are also eroding your capital against inflation. According to me, you should concentrate on generating value from investment in the long run.

If you are conservative investor, Public Provident Fund (PPF) is good option for high tax bracket. Lower tax bracket investor may go with bank fix deposit also.

If you have some risk taking capacity you can make good capital appreciation with tax saving. ELSS mutual fund is the best option for long term investment as it offer capital appreciation with tax saving.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Financial Planning : Is it for you ?

Financial Planning : Is it relevant for you..?

Whenever I conduct workshop on financial planning or meet the client. It is very common doubt inside the client’s mind whether the financial planning is so important for them or not. In our country, we plan everything but not our finance. We are the largest saver country in the world. In fact we have  great saver mindset but most of us don’t understand or underestimate the need of financial planning. A common myth exist among the investor that it is only useful for only rich and elite class person. Today we will try to find out for whom the financial planning is important.

• If you don’t know where is your income going every month and always wonder about your expenses then you definitely need to make a budget for your income and expenditure. It is very basic and vital setp towards making a financial plan. Impulsive buying and lack of budget planning may be proved very costly for your long term future goal.

• If you are in the trap of debt and your liability is increasing due to loan interest amount you pay then seriously you should make a proper plan to get out from various liabilities. For the blind race to lead much comfort life style, you often use the facility of credit card, personal loan and bank overdraft facility. These all loans lead you towards a serious financial mess. A financial plan will help you to come out from financial mess.

• If your investments are scattered and you are not sure that whether it is right investment or wrong then financial planning for you. Many times we do investment on the recommendations from agents, relatives and friends without knowing the product’s risk and return ratio. Keep in mind each investments have always some degree of risk. A financial plan provides you consolidated investment statement and you can analyze it time to time in very easy manner.

• If you have a multiple life insurance policies and you are paying a hefty premium for those policies without knowing the expected return and sum assured then you must need of financial plan. Most of the people are underinsured in our country and people must know the about adequate insurance amount what they need. It is very important to know that how much life and medical cover you need. A financial planner help you to determine all these need based on your provided information. Insurance also is the vital part of any financial plan.

• If your major investment in the particular asset class and you are not sure whether it can help you to achieve your particular goal then you need a financial planner who help you to achieve your future financial goal through diversified investment portfolio with proper asset allocation. Asset allocation may be differ for person to person and you need to know which type of asset allocation you required to achieve your financial goal.

• If you don’t have habit to regular investing then you must need a financial plan. In every success goal achieving story discipline and determination is the key element. By create a financial plan with the help of expert and follow that plan religiously is very crucial to achieve your long, medium and short term goals.

Now after reading the above mentioned pointes it has become clear that financial plan is like a road map to achieve your dreams and desires to lead a happy and prosperous life. However, many of you have not any idea how to invest and where to invest or you may not have sufficient time to make financial plan and track your investment portfolio then you should must hire a expert planner lead to stress free life.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com