Financial Advisor

Friday, March 28, 2014

Insurance Planning – Part 2

Insurance Planning – Part 2

In last article we had discussed why insurance is important for everyone and how to determine the right amount of sum insured. Today we are discussing about the type of life insurance product available in the market. Every insurance plan has some positive and negative aspects so before going with any insurance plan we should understand plan in very well.

Term Insurance Plan:

It is the basic form of insurance that pays a lump sum amount on the only unfortunate event of death of the insured person. If you survive the whole policy term it pays nothing. Due to the no return from this policy on survival of insured person, people often do not show interest to purchase this policy. In reality, it is very good plan for any earning individual. The premium of this policy is very low compare with other insurance plan. People can get adequate cover with very low paying premium. A 30 year old person can get Rs 50 lakh insurance cover to pay around Rs 7,000 in a year. The amount of premium would be constant during the whole policy term. The adequate money receivable under this plan helps you family members to meet their expenses and future need. Your life is precious so always take an appropriate insurance cover according to your life style.

Endowment Plan:

These plans are also known as traditional plan. It provides you insurance cover during whole term and if you survive whole term it returns a lump sum amount at the time of maturity. It attracts most of the people as it provides insurance cover and returns both. Although, the return of these policies are very low in the range of 4-6 percent which do not beat even inflation but still people go with this plan. The premium of these endowment plans is much higher than term insurance plan. If you satisfied with low return with safety then these plans for you.

Money-back plan / Child Plan:

It is another form of endowment plan and provides some part of sum assured at fix interval. The all other features are same as endowment plan. The premium are very high on these plans and rate of return same as traditional plan. These plans are made to fulfill your intermediate goals which are far like 5 year, 0 year etc.

The above mentioned plans are related with life insurance. We will discuss about non life insurance products in the next article.

If you want more information regarding investment and insurance or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Thursday, March 27, 2014

Insurance Planning - Part 1

Insurance Planning – Part 1

When you prepare your financial plan, insurance is a very vital of it. It is a very effective risk management tool for any living human being. By effective insurance planning, client always achieve a lot of peace of mind.

Why Insurance planning ?

Any individual who earn money and doing well in their career and fulfill all financial goal in their life and at a certain age get retirement. If this assumption would be same for each individual across the world then we need not life insurance. Unfortunately every human being have a certain type of life risk during their entire life. These risks may be premature death, permanent or temporary disability due to accident or poor health. These mentioned risks affect your future earning or may be totally stop the future earning. It also affects badly on your personal and financial life.

Life insurance cover your life’s uncertainties and helps your surviving family members in case of any unfortunate event. It provide a certain amount of money to the nominee for the survival of your family member. So now it is clear that it is very vital and important financial product and every earning individual must consider it.

How to determine the sum assured?

In our country, most of insured person are under insured. It means they have not covered by sufficient amount. That amount is known as sum assured. To determine the sum assured there are many methods. Few are given below:

1) Human Life Value

2) Multiple of Earning

3) Appropriate size premium

4) Need based Approach

If you feel difficulties to determine the appropriate sum assured then you can take services of an expert financial planner. You can also adopt a simple approach like sum insured should be equal to 5 times of your annual income. The most famous methods across the life insurance industry are human life value and need based approach.

If you want more information regarding investment and insurance related or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Wednesday, March 26, 2014

Tax saving option in Section 80C

Some Tax Saving option in Section 80C

When we talk about tax planning, most common term flash in mind is Section 80C. The Section 80C offers various options to fulfill people’s different need. In Jan-March quarter most of the person rush for tax saving instrument and often make wrong decision in hurry. They don’t even realize that they have invested their money in those products which is really not suited them. The right time to make tax plan is the beginning of fiscal year (April-May).Today I am throwing some light on those products which are available in under section 80C.

Provident Fund: It is the very common and popular in service class people. As employer deduct the some portion of money for contribution in provident fund from employee’s salary. PF gives 8.5% per annum and is very secure in terms of safety. Employee can liquidate it at the time of retirement. However, partial withdrawal is also permitted with some condition.

Public Provident Fund or PPF: It is very good option available with low risk and offer tax free return after maturity. It offer return market linked for current year it is 8.8%.The lock-in period is 15 year but partial withdrawal is possible after fifth year.

Bank Fix Deposit: The 5 year bank fix deposit is also available. Various bank offer return 8-9% this year (See earlier blog). The return is taxable as per one’s tax slab. The lock in period is 5 year. It is low risk product but keep in mind the post tax return also before investing in fix deposit.

National Saving Certificates or NSCs: It offer 8.5% return and is very safe investment. The lock in period of these instruments are 5 and 10 years. The person can choose any maturity 5 or 10 year based on their need.

Senior Citizen’s Saving Scheme: It offer 9.3 % return and added in taxable income. It is the most suitable option for senior citizens (above age 60 year) as it gives regular interest income in each quarter. It has no risk and very safe investment option. The lock-in period is 5 year.

Insurance Policies: It is long term product and lock in period depend on plan’s maturity. It has highest degree of safety but its average return around 6-7% only.

ULIP or Unit Linked Insurance Plan: The return is market linked as no fix return offer. Partial withdrawals possible. It is in the form of bundle which offer insurance, tax exemption and return also. The cost and charges is high compare with other products. The risk is depend on which option you have chosen.

ELSS or Equity Linked Saving Scheme: It is market linked product. There is no fix return. The lock in period for this product is 3 year. It has shortest lock-in period among all Section 80C options. It is high risky investment product.

NPS or National Pension Scheme: It is retirement goal oriented product. No withdrawal allowed before retirement. The return is market linked and it has very low expense ratio means low cost product.

Besides the above mentioned investment products which are in under section 80C, there are some expenses also eligible in under this section.

Home loan repayment: Principal portion of EMI is eligible for deduction till Rs 1,00,000 limit.

School Fees: Tuition fees of up to two children in a recognized educational institute for eligible for Section 80C

Home Purchase: During the purchase of home whatever stamp fee and registration fee you pay is also deductible from taxable income.

There is also other option available for tax deduction other than Section 80C which we will discuss later. If you want more clearity on these products pleas ask through email

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com
www.artofinvest.com

Tuesday, March 25, 2014

Gold : For Wealth Creator or Beating Inflation ?

Gold : For return generation or beating inflation ?

After discussing about equity and debt asset class, we are now going to talk about gold. From ancient time gold has a prominent position in our country. Gold is a precious metal. Almost every Indian has stored it no matter of the quantity. In India, we are gold obsessed people and the largest gold consumption country in the world. It is the reason after global decline in prices of gold its price has not gone down in India. The demand is still high after many efforts done by the government to curb the demand of it.

Uncertain global economic market has also increased the demand of gold. Many of wealth managers now took it as a part of their portfolio. In my opinion gold as an asset class is hedge against the inflation. One can take a limited exposure of gold in their portfolio. When equity and debt market not generate the return and even not beat the inflation then it comes to rescue for portfolio value.

After 2007, the steep rise in gold prices has lured many investors and many of the investor has purchase significant quantity in their portfolio. I have repeatedly said to the investors and through my blogs for limited exposure of gold in the portfolio. Equity derives their value from companies, real estate derives their value from rental income but gold has no commercial use and produce nothing except gold ornament. There is nothing to evaluate the value of gold. Its price only depends on demand and supply. A very famous line about gold has said someone that the value of gold is in the eye of buyers. We cannot evaluate its true value.

Uses of Gold:

Worldwide central banks and governments hold gold as a reserve currency in uncertain economic condition. Gold can help hedge such risk of devaluation of money, inflation and deflation.
Many companies and banks are providing loan against gold. People pledge their gold and get loan instant.
In India gold mostly uses in ornament form. People in India have special emotion for gold. The buy gold for many auspicious occasions like marriages, functions, festivals and etc.
Many fund managers buy it for portfolio diversification purpose.

Traditionally, in our country gold are purchased in the form of jewellery, coins and gold bar. It has many disadvantages like storage cost, making charges, quality issue, purchase at a premium and resell below market price. Due to these disadvantages people now adopt unconventional way to purchase gold like Gold ETF, Gold Mutual Fund, It offers lower storage cost, no quality issues, and better pricing.

If you want more information regarding investment realted or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Monday, March 24, 2014

Debt Investment: Part 2

Debt Investment: Part 2

We are discussing about investment asset classes in these days. In the last blog we had discussed about debt investment. In today’s article, we are going to talk about debt investment products and its suitability. In our country, the awareness about debt mark is not as wide. Some debt investment avenue we are going to discuss below:

Government Securities:

It is issued by the government of India through RBI for borrowing from the public to meet various spending. In simple term government take loan from public and return that loan on fix date with fix interest rate. It is the safest product in debt category for capital protection and return. It is also known as gilt securities. Gilt securities include all government bonds, T-bills, state and central govt run instruments.

Post office saving schemes:

It is very famous among the investors as some of post office saving schemes gives saving option and tax benefit both through various schemes. It comes with different investment tenure and return rate. It provides safe investment opportunity to the investors. It is the one of the largest saving vehicle for the investors.

Public Provident Funds (PPF):

PPF is also a saving tool for wealth accumulation in long term. It come with 15 year lock in period and provide fix rate of compounding interest. The rate of interest announce by the govt every year. The investment in PPF and return from PPF both are tax free. The tax saving investment limit in PPF at present is Rs 1 lakh. Many banks are providing PPF facility in these days.

Debt Mutual Fund:

Investor can access debt market’s benefit investing in debt mutual fund. By investing in debt mutual funds investor get the benefit of various type of investment as debt mutual fund deploy their money in various government securities, corporate debt, bank securities etc. The main aim of these mutual fund are to provide capital protection with income generation. It comes with different maturity period so according to the need investor choose schemes very carefully.

Bank fixed Deposits:

It is traditional investment avenue for the investors in our country and is very popular among the investors. It comes with different maturity period. Rate of return on these fix deposits are taxable. Its post tax return is even not able to beat inflation but it is still popular as investors have a lot of trust in bank for capital protection. Keep in mind, fixed deposits upto Rs 1 lakh are covered under DICGC (Deposit Insurance and Credit Guarantee Corporation).

Corporate deposits, bonds and debentures:

Many corporate issues bonds, debentures for raising the money and offer a fixed rate of return. These types of investments carry credit and interest rate risk. Many credit agency issue the rating of these types of schemes. Understand all aspects like rating, tenure and return before investment in these types of schemes.

Its Suitability:

It is very good for those investors who prefer capital protection than return. It is less volatile than equity. It is safe bet for conservative investors. It is ideal investment for those whose goal approaching near. Those who needs regular income flow it is good investment for them. Before investment in debt securities, first assess your time horizon and then invest accordingly. There are wide ranges of debt products offer depending on your investment time horizon.

It is very vast subject and we cannot cover it in one article. If you want more information regarding debt investment or you have any other query related investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Saturday, March 22, 2014

Debt Investment : Part 1

Debt Investment : Part 1

We have discussed about equity as asset class in details our previous blogs. Now we are moving towards debt investment. Debt means loan. It means borrower have obligation to return money with interest to lenders.

In debt market investor invest money as a loan with issuer at a predefined coupon rate. Issuer may be any institution, banks, government, public sector companies, private companies. Coupon rate is nothing but interest rate which issuer pays to the investors at predefined regular interval.

Advantage and disadvantage of debt investment:

It is less volatile than equity market. Conservative investors invest in debt market for safety of principal amount. They feel more comfortable in debt compare with equity investment.

In debt investment, investors get regular cash flow in the form of coupon which is predefined. Investors get coupon income at regular interval.

It works on interest rate moment. The bond prices increase when interest rate goes down and investor can take advantage of capital appreciation.

The return on debt investment is fixed. That is the reason investors feel more comfortable in this investment.

However, it has less risk than equity but it gives low return and merely beat inflation. In majority of debt investment post tax return even not able to beat inflation.

It is low risk and low return investment and retail investor cannot direct participate in the debt market. They participate in the debt market through bonds, debt mutual fund and PPF etc. Right price discovery is also problem in debt market.

Debt investment has interest rate risk and credit risk also. We will discuss further about these risks in our further blogs.

We will discuss in our next blog about the various available debt avenues and its suitability to the investors. If you want more information regarding debt investment or you have any other query related investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Friday, March 21, 2014

Equity Investment: Suitability & Available options

In the last equity related article we have discussed about advantages and disadvantages. Today, we will discuss for whom is equity investment is suitable and how can we invest in equity. First, lets talk about some point about those investors who qualify for equity investment.

Equity investment is for those investors who have risk taking capacity. In the near term, the valuation of their investment may be go down significantly. It may not be suited for those investors who want to safety of their capital any time. Before any equity investment investor should gauge their risk appetite.

It is suitable for those investors who want earn higher return on the investments after adjusting inflation. As per available data, equity has beaten each asset class in the long run. If you want to beat inflation in the long run, equity investment for you would prove the best bet.

Equity investments need patience and discipline. You must have patience to achieve your long term goal. You can easily achieve your long term goal like retirement plan or any goal more than ten year by investing in equity every month on regular basis. Be investing every month you get benefit of rupee cost averaging also.

As per current taxation, the long term capital gain in nil on equity investment and dividend is also tax free. It is good option for those who want prudent tax planning.

How can we invest in equity?

After discussing suitability of equity now we are going to discuss how we can invest in equity. There are 2 ways to invest in equity.

Direct Investment

For direct investment, you need to open a demat account with any registered broker and need a bank account for transaction. You can purchase a listed company’s share by calling your broker. It is so easy. Many companies come with IPO (Initial Public Offer) to issue share directly to the retail investors. Any investor can participate in the IPO.

It is suitable for those investors who have vast knowledge of the companies, economy and business cycle. It required a lot of time, knowledge and skill.

Indirect Investment

For those investors who have not much time to study about companies and financial market, there are indirect investment options available. Mutual fund is the best option available to reap the benefit of equity investment. Any investor can invest a small amount like Rs 500 every month on fix date and can make the good corpus in the long run. The mutual fund investment provide the advantage of professional management, qualified research team, transparency in investment for any type of investors with even small sum of investment.

There are other indirect equity investment options also available like PMS, ULIP etc. As per my view, mutual fund is the best and low cost option available for everyone.

If you want more information regarding equity investment or you have any other query related investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Wednesday, March 19, 2014

What is CPSE ETF?

CPSE is stands for Central Public Sector Enterprises. CPSE ETF is exchange traded index fund. It consist from 10 PSU companies stocks. CPSE index consist from Maharatnas, Navratnas and Miniratnas. These 10 constituents are ONGC(26.72%), GAIL(18.48%), Coal India(17.75%), REC Ltd(7.16%), Oil India Ltd(7.04%), Indian Oil Corporation(6.82%), PFC Ltd(6.49%), Container Corporation(6.40%), Bharat Electronics(2.0%) and Engineers India Ltd(1.13%). It is a part of government’s disinvestment program.

This idea has begun before 2 years back and now government has come with this CPSE ETF. The government has selected the Goldman Sachs Mutual Fund to manage CPSE ETF. Goldman has run gold ETF successfully which is listed in the name GOLDBEES in both NSE and BSE. The issue is open from 19^th March, 2014 to 21^st March, 2014.

Why invest?

It is clear that government want to sell stake in PSUs more as its proposed disinvestment program and want to reduce its fiscal deficit through it but before investing in this ETF NFO investors should consider all aspect of this issue.

It offers 5% upfront discount on reference market price. If investors hold it till one year, they will get 1 loyalty unit for each 15 units hold. These 10 companies are among the best companies from all available PSUs. These companies are available in very cheap rate now so current valuation also is attractive to purchase it. The expected dividends are also a main reason to purchase it.

Why not invest?

It is not good for short term investor as it is equity fund. So equity related risk is always there. It is new type of product which is not related any particular sector or theme. It seems that this ETF represent too many power and energy sector companies. Although the valuation is attractive at the current time but keep in mind the fact these PSU companies run by not competent promoter. Before invest in this ETF evaluate all possible pro and cons.

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

Warm regards,

Arvind Trivedi

Certified Financial Planner

Equity : A broad view as asset class

Equity : A broad view as asset class

There are many investment avenues available in the market like equity investment, fix deposit, debt/ bonds, metal, arts etc. We can divide financial assets in 3 types. These asset types are equity, debt and gold. In this article we will discuss about equity investment.

We are often told that equity investments are subject to risk and in nature it is very volatile. In simple terms, equity means the ownership, investor who own equity in company participate in company’s growth like a promoter. If you hold equity in a particular company, it means you become beneficial owner of that company. As an equity shareholder, you also get the opportunity for the vote on important business decision.

Advantage in equity investment:

Profit making companies share their profit with shareholder as a dividend and it is totally tax free as per the current law. Over a long period you can make a capital gain through increase in share prices by investing in good companies. As per current law, in our country long term capital gain in equity is nil. It has outperformed in terms of return to other asset class over the long period. It has ability to beat inflation and generate super return. It is very crucial investment to achieve long term goal.

It has greater liquidity compare with other assets. The transaction of shares happened on exchanges and it is regulated by SEBI. Equity trading mechanism is very transparent and no room for wrongdoing. Equity investment play very important role in the economic growth of the country. It mobilize funds from public towards various sector which is very crucial for country’s development.

Disadvantage in equity investment:

Return of Investment in equity is not guaranteed. It depends on company’s performance. If company is doing better, you will get higher return but if it is not doing good, then you have risk to lost your capital also. In short run, it is very volatile so it is very risky investment in short term investment point of view. If you have invested in bad companies or enter when the prices are very high then you can lost substantial amount of money.

Equity investment for whom and how we can invest in it. We will discuss about this in next article. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Tuesday, March 18, 2014

Why Investment?

Investment : Why ?

We often all listen and read about investment. Many experts share their view and advice on investment through various media like TV, news letter, blog etc. A lthough a lot of information is available on internet and many other media but common investor still has no clear idea about investment. The investor awareness is very low about investment. I am trying to go from very basic like what is investment? What is asset class? What risk associated with each asset classes etc.?

Why need investment ?

We all have some future goals or responsibilities like children education, their marriage, retirement planning, abroad trip, purchasing big home and many more. To achieve those goals we need money at various stages in life. The value of money badly affected from inflation. By passing the time the purchasing power of money decreases. If we do not our money invest in anywhere and keep in our locker or keep idle in bank account, we cannot fulfill our future goal due to the non availability of appropriate money for the particular goal. Inflation eats our saving during the long period. There are difference between saving and investment. We Indians are great saver but poor investor. To fulfill our future goals successfully we need investment successfully.

“Investment is an act of deploying your money in an asset class with an expectation of return after paying taxes higher than inflation to preserve purchasing power of money.”

Assets are broadly classified in two categories:

Physical Assets
Financial Assets

Physical Assets: A physical asset is an asset which has value and can be touched, felt and used. A piece of land, home, gold coins etc are the example of physical assets. These assets carry storage cost and maintenance cost. A owner of these assets feel very safe and confident.

Financial Assets: These assts cannot be touched or felt and bought in the form of certificates. Equity shares, bonds, debentures, fix deposits, mutual funds, provident funds etc. are the example of financial assets.

In India, people have been more comfortable with physical assets, which have drawn a large portion of their wealth. As physical assets held by an investor do not benefit the economy, they are termed as unproductive assets. In order to help the economy grow and in turn benefit from the growth of the economy, people need to deploy a portion of their investments towards financial assets.

We will discuss more about financial assets in next articles. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner