Financial Advisor

Tuesday, September 22, 2015

Investor's Investment Knowledge

Investor’s Investment Knowledge

I still see in our country that people do not have financial literacy. They do not know the proper process for investment. They still believe in fix deposit, purchasing land or LIC policies etc without any knowledge of any investment objective. The worst thing is that they still believe LIC endowment policies are the best option for long term investment. There are need for each investor to know about the investment product in detail in which they are going to invest.

For example in most of cases people who have LIC policies do not know about their risk cover and expected return at the end of tenure. It is my personal experience that 90% of policy holders do not know about their sum assured and expected return. Only they know about that premium amount which they are paying every year. They even do not serious about to know about inflation and real rate of return. Many investor invest in land for short term period like 6 months or 1 year without any idea of capital gain tax and liquidity.

The proper way for investment is that first, you should clear about your investment horizon after that check whether your investment will beat the inflation. After deduction taxes and adjusting inflation what will be your real rate of return? These type of question should be answered by your financial adviser or company agent.

Please keep in mind there is huge difference between company agent and financial adviser. Financial adviser will help you plan to your investment and future goal in realistic and prudent way. Other side the agent will be more interested for their commission only. The agent has not much concern about your hard earned investment or your future goal. Their main objective is to take your sign on the form, collect the investment amount cheque and get the commission in their pocket.

The agent, only advise you about the product for a one particular company. In other side the financial adviser will suggest you the best option available in the market. The reason for this that the adviser do not work for any one particular company.

My suggestion for all of you is that when you plan for your investment, please never go after emotional advertisement and you should have fair idea about liquidity, time frame, inflation, real rate of return and your future goal of investment. It is responsibility of all advisers and agents that they should give the proper detail of financial product to the investors.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Sunday, July 19, 2015

Falling Gold Prices!!!

Look at Gold Prices

Dear investor look at gold prices, you can read in my old blogs. I have many times suggested that gold is not good investment avenue for wealth creation. Gold plunged 4 percent on Monday to its lowest level in more than 5 year.

It was sudden, massive drop for gold as they breached critical support levels as on growing expectation that the US Federal Reserve will hike interest rate this year. I am again saying here please do your asset allocation according to your need and investment period. Gold is very good for hedging but it is not very good investment option in long run.

In India, people are mad about gold purchase regardless price and return. So I advise to my Indian investor that they should keep gold as much they need for holy occasion and events and do not buy it for investment purpose.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Friday, June 19, 2015

Bank FD v/s Banking Fund

Bank FD v/s Banking Fund

We Indian love very much keep deposit in bank FD. Since my childhood I have seen immense faith of people in bank FD because they all think that bank FD is the safest instrument on this earth to keep their hard earned money. Very few people know that the bank only give guarantee maximum Rs 1 lakh through insurance in case of any system collapse or bankruptcy. It means more than Rs 1 lakh in bank always in risk. However, there are very low chances to fail the bank because our central bank RBI is one of the top regulator in world. Every financial instrument have their own risk and reward. So we are going to do a small comparison between bank FD and banking fund.

For example a person invest Rs 1,00,000 in SBI bank FD and in a banking Fund on 20th May 2003. After 11 year the value of invested Rs 1 lakh in SBI bank FD grows up to Rs 2,66,190. On this amount we have to pay tax according to our income slab and bank deducts TDS direct at the time of withdrawing the money. Bank FD is a secure investment compare with other available instruments. It hardly beats the inflation. Therefore it is not a wealth creator.

In other hands, banking funds invest in banking stocks. After 11 year, the value of invested Rs 1 lakh grows up to Rs. 14,67,000. And the amazing thing that there is no TDS deduction and it is tax free. It means you have not to pay tax on your gain. The only risk is volatility because equity is always volatile and checks your patience. It is a wealth creator instrument for long term investor.

Friday, November 21, 2014

Desire V/s Need and the role of financial planning

Desire V/s Need and the role of financial planning

I have been in financial planning since last 5 year and I have noticed one thing that the average investors are not able to differentiate desire and need. In this world, every human being have some needs and responsibilities. Everyone has to fulfill basic need like bread and butter, clothes and residence. After fulfilling these basic needs, there are some other responsibilities like take care of family members and social responsibilities towards relatives and society. Here from family members means include mother and father also. As many people in India are also adopting the western lifestyle and planning only their wife and kids.

In the above paragraph, I have discussed about only human needs. These needs may be different for person to person. I have seen many person who have immense wealth but not happy as they have not separated their need and desire. When the word “Desire” comes in picture, then the peace of mind and happiness go away from human life. As there are no limit of desire and for fulfill your all desire one human life is not enough. You have to take birth many many times to fulfill your desire but it does not complete and it is the main cause of sadness and the common person are not able to enjoy the life in today’s world. As long as desire increase in your life, the other very dangerous and new element comes in your life that is called “Greed”. Once greed enters in your life you cannot be live happy life and satisfied life.

Now you are realizing that the main cause of our sadness in life is greed factor and we should completely avoid it but it is not possible. Every human being is in within influence of some amount of greed. We cannot avoid it but we can control. How it should be control? The answer of this question will give you by your financial planner. In this article I will not discuss about how to make financial plan but tell you only why and how important is it for you.

By making financial plan you will be able to draw a line between your need and desire. You will set your future goal and priorities. To fulfill your future commitment where should you have to invest that will be take care by your financial planner. Financial plan is nothing but some pieces of paper where you have described your priorities and goals and it also have the strategies how to achieve your future goal successfully. By fulfilling your commitment and goals I think most of us can live peacefully and filled with joy life with control of greed and desire.

How to make plan and what other factor play important role in financial planning, we will discuss in our other blogs and articles.

If you want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Tuesday, June 17, 2014

Tax Planning: Debt Product in Section 80C

Tax Planning: Debt Product in Section 80C

We have witnessed a sharp market rally in last couple of months due to stable and much awaited leadership. The next big event is union budget which is coming next month July. There may be some changes regarding tax exemption in this coming budget. Let us discuss about the currently fixed income instrument available option under section 80C. However I always recommend ELSS scheme is good option available under section 80C if you have risk appetite for equity market and have a long term vision. Today we are going to discuss only about fixed income instrument.

Under section 80C, there are many options available like PPF, EPF, NSC, Post Office Time Deposit and 5 year tax saving bank FD. Before choose any option you should also understand liquidity and tax treatment of particular option which you are going to choose along with return.

Employee Provident Fund (EPF):

In this option employer deduct every month 12 % of your basic salary and deposit the deducted amount in your provident fund account. At present it gives return of 8.5%, the rate of interest rate announce every year by the government of India. The maturity amount and accrued interest during the entire investment term is tax free.

Public Provident Fund (PPF):

In this option you can contribute any amount but your tax exempt limit is Rs 1 Lakh including all investment option under section 80C. The lock in period is 15 year and maturity amount is tax free. At present it offer 8.7% return. The rate of interest is announced every year by the government of India. The maturity amount and earned interest during the investment period both are tax free.

National Saving Certificate (NSC):

It comes with 5 year and 10 year fix term. The 5 year NSC offers 8.5% and the 10 year NSC offer 8.8% fix return. The return of NSC is taxable. Every year earned interest is taxable and maturity is also taxable. If accrued interest during the investment time is not declared every year in IT return then the accrued interest amount for all years is taxable at the time of maturity according to your income tax slab.

Post Office 5 year Time Deposit:

It offers 8.4% return and lock in period is 5 year. The accrued interest during the tenure and maturity both is taxable as per your tax slab. However, tax not deducted at source. You should specify it your IT return.

Tax Saving 5 year Bank FD:

It is bank fixed deposit with lock in period 5 year. The banks offer the return between 8.5% to 9% range. The bank deducts the tax every year from your earned accrued interest. So the accrued interest and maturity is taxable.

After reading about above mentioned fixed income instruments, you can easily find out that except EPF and PPF all instruments are taxable. So before investment in the above mentioned instruments calculate your real rate of return after paying the tax. It is very clear that none of the above mentioned instrument beat the inflation.

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

Warm regards,

Arvind Trivedi

Certified Financial Planner

Saturday, May 17, 2014

After Modified India, Your Investment..?

Your investment after Modified India

Yesterday, the 16^th general election result has come in India and the people of India has given a clear mandate to a non congress party first time since independence. It is the welcome sign for our lovely country. During last 10 year, India has witnessed the policy logjam, stagnant growth, ballooning inflation and a number of scam and weak leadership. The leadership has completely failed to inspire the citizen. Therefore this time the citizen of India has given clear mandate for powerful and growth oriented government.

After elected NDA government with full majority, now the important question has raised in the investor’s mind what to do with their investment. The share market is trading at all time in these days after the hope of new government. The share market was not delivering the good return after 2009 so many of investor now rushing to sell their investment and want to recover some investment or want to book some profit. In my opinion, do not make that mistake of selling your investment at the moment. Stay invested with your investment objective and focus on your long term investment. Some of investor now worried about new investment in the share market but in my opinion any time is good time to start investment and do the regular investment in regular interval to counter the volatility of the market.

The effect of good governance and growth oriented policy making will be seen automatically in our economy but it will take time and an investor should wait for that with patience. I again say to all my reader that do not exit at present from the share market investment unless you need very badly. You will reap spectacular return in coming couple of years. Keep your SIP investment according to your investment mandate and focus on your financial plan.In India, our domestic investor still under invested in equity market. If you have not invested in equity market till date I would say start invest now, there are still growth potential in our market.

If you have any query about investment and financial planning, feel free to ask us. You can send your query to our email id.

Warm regards,

Arvind Trivedi

Certified Financial Planner

www.artofinvest.com

Friday, May 2, 2014

Is Endowment Plan with guaranteed return good for you?

Endowment Plan with Guaranteed return…!!!!

I have discussed in my earlier blogs about endowment policies. In fact these types of policies failed both purpose insurance coverage and return. Neither it provides proper insurance coverage nor gives the good return. I get query about almost on daily basis regarding guaranteed saving insurance plan. We Indian investor always like “guaranteed “ word and often trap with this word. We pay a very high price for this word.

One of my blog reader has asked recently whether he should purchase ICICI prudential guaranteed saving insurance plan. In my opinion, never invest in those product which provide insurance and investment opportunity both. The selling pitch of these products often so attractive that investor do not resist themselves from such type of product.

The realty of these products that it do not give the proper coverage and it also not give the good return. This particular product gives only 5% return on your paid annual premium and provide only 20-25 times insurance cover of your annual premium. If you go with term insurance you can get up to 700 times insurance cover of your annual premium.

For return point of view if you have conservative risk approach and invest in other debt product like debt mutual fund, PPF, bank FD and others the you will get easily return between 8% to 10% return. If you want to lock your money for more than 10 year then equity investment can give you average 15% return. Many mutual fund schemes like ICICI prudential dynamic fund, Birla SL 95 ELSS has given more than 20% return also.

In endowment product 5% return is not good return according to me after 15-20 year investment. In endowment scheme who guarantee the fix return have many types of expenses and hefty agent commission like 15% to 20%. It badly affects your return on investment. Endowment guarantee plans are only beneficial to agents who are selling this product through emotional sales pitch.

I would like to advise all of my reader that they should avoid such type of products and invest in those avenues which are capable to beat the inflation and provide good return also. Liquidity is also the crucial factor at the time investment.

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

Warm regards,

Arvind Trivedi

Certified Financial Planner

Monday, April 14, 2014

Impact of general election on equity market

Impact of general election on our market

We are one of the largest democratic country in the world. The general election is the important event of our country. The financial market is keenly waiting the outcome of the election result. Our share market has also performed and made a new high as per positive outcome from this election. Any unexpected or below from the expectation would impact badly on the market in short term. The election result would be come out on 16 May, 2014.

In my view, the outcome of election event is only important for short term. In last few trading days the volatility index has gone up significantly. Let see the market’s 2 days return after the election result:

Election Year	2 days return after election result
1999	6.05%
2004	-16.56%
2009	17.34%
2014	???

If we analyze the election result from 1991 to 2004, the sensex has given 20% return after 1 year. Although it is very difficult to predict the outcome of result but we can easily understand that business cycles will continue irrespective of any government. The long term fundamental is intact for our economy. The last few months has given a good hint for economy like CAD has come down, inflation has also cooled down, the future interest rate till October look stable and afterwards it should also soften which is good sign for our economy.

No doubt, election play important role in driving fundamental and push to the economy. I hope after election the elected government push the investment in system and growth would be on track. The delayed project will get green signal and some important decision would be take in speedy manner.

If anyone who has not invested in the equity market still, it is the right time to reap the benefit of the economy and start investing in the time horizon of 3-5 year. In the next 3-5 year, I expect the good return from the equity market. For retail investor it is the good time to enter the market for 5 year time horizon.

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

Warm regards,

Arvind Trivedi

Certified Financial Planner

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

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

Thursday, March 13, 2014

Inflation Index Bond

Deutsche Mutual Fund was the first fund house to launch Inflation Indexed Bond Fund in January.

After Deutsche, Axis and SBI are also planning to launch Inflation Indexed Bond Funds.

Both Axis and SBI have filed offer documents with SEBI to launch Inflation Index Funds. Distributors feel that more fund houses may join the race to launch such funds.

Benchmarked against CRISIL Liquid Fund Index, these funds aim to provide investors inflation adjusted returns.

These funds invest a minimum of 70% of assets in Inflation Index instruments and a maximum of 30% in debt and money market instruments. Investors can invest in a minimum of Rs. 5000 in these funds.

Deutsche was the first fund house to launch Inflation Indexed Bond Fund in January 2014. The fund collected Rs. 27 crore during its NFO. As the name suggests, the scheme invests a minimum of 70% of its corpus in Inflation Indexed Bonds (IIB) issued by the government. IIB have their coupon and principal linked to inflation as measured by Wholesale Price Index (WPI) and a tenor of 10 years. Such instruments are being issued every month since June 2013.

We spoke to some experts to find out if these funds make good investment opportunity.

Suresh Sadagopan of Ladder7 Financial Advisories feels that Inflation Index Bond Funds are more tax efficient. “If you hold it more than one year then the returns will be treated as capital gains through the mutual fund route. If you invest directly in Inflation bonds then then you have to pay tax as per your income tax slab. So investing through mutual fund route is more tax efficient. You also get liquidity.”

Nikhil Kothari of Etica Wealth Management says that investors who are purely looking to hedge against inflation can invest in these bonds. “Inflation Index bonds are available at discount - Rs. 82 currently. So there is room for getting capital gains. If more fund houses come up with such funds then there is a possibility that the demand for these bonds will go up which will lead to increase in the price of the bond. Investors falling in the 30% tax bracket with a 3-4 year time horizon can consider investing in these funds. If you compare these bonds to tax-free bonds, tax-free bonds can provide capital appreciation when interest rates fall which is not the case with Inflation Index Bond funds. The returns in tax-free bonds are fixed whereas the returns from these funds can vary depending on the rate of inflation.”

Hemant Rustagi of Wise Invest Advisors says “Inflation Index funds have not caught the fancy of investors yet. The funds may beat inflation at a gross level but after paying expense ratio and tax the returns would be less. The returns could go down as inflation falls. Investing through mutual fund route is better because you don’t have to lock in money for ten years. Tax free bonds may look attractive but there is no compounding benefit.

Vishal Dhawan of Plan Ahead Wealth Advisors feels that inflation index funds can offer better returns as compared to tax-free bonds if interest rates continue to go up. “These funds are being ignored because of the high yield offered by tax-free bonds. Inflation Index Fund is a much more tax efficient way of investing in these bonds than investing directly.

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

Warm regards,

Arvind Trivedi

Certified Financial Planner