Why do you need to set goals?

Posted by Mehul Kothari | Published on 06 Feb 2019
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Why do you need to set goals?

What is goal setting?

Everyone has dreams and ambitions. For example, a student may want to stand first in class. An athlete wants to win the gold medal in a track and field event and so on. But when it comes to finance, everyone has a similar dream. People want enough money so that they can meet their needs and desires. However, having a dream is not enough. You need to convert these dreams into reality. And for that, goals are necessary. To borrow a line from author Napoleon Hill, “A goal is dream with a deadline.” The goals of financial management are critical in ensuring a seamless investment process for a better tomorrow.

So, let’s find out why goals are very important when it comes to financial planning.

Goals in financial management

What is goal setting? Stocks, mutual funds, bonds, pension plans and fixed deposits are some of the common investment avenues where people invest their money and can be regarded as goals. But instead of simply investing to earn higher returns in the future, it is always better to invest with a purpose, thus emphasising the importance of goal setting in our lives.

Why is goal setting important? Let’s take Gaurav’s case as an example. An accountant by profession, he has a wife and two young kids. He wants to start investing because his financial responsibilities are going to increase in the future.

The illustration below lists a few of his future responsibilities and financial goals he wants to achieve in the next few years.



Clearly, Mr Gaurav has different obligations. But on a closer look, it is possible to segregate them into three different categories:


Importance of goal setting

Segregating your financial requirements into short-, medium- and long-term goals can be very helpful. This way, you can create a good plan to achieve these goals at the right time in life. In addition, it also helps you identify which investment options can help you achieve your goals as fast as possible.

Conclusion

Taking that first step to invest money is very important. But it is more important to invest towards specific goals. This way, you can channel your funds in the right manner and utilise the benefits of goal setting through a sound financial plan, thus realising your dreams in a timely manner.

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Thumb Rule for Financial Planning

Posted by Mehul Kothari | Published on 06 Feb 2019

Financial planning may not be all that an easy task. In fact, it can be easy to make mistakes or get the steps confused. This, however, needs to be rectified right away. Otherwise, a flawed plan has the tendency to negatively affect your financial health. Don’t worry, though. There is a thumb rule for financial planning that one must follow, just like most crucial planning. Or you could avail a qualified financial planner to save on time and effort. Refer to these basic financial planning rules of thumb, which, if followed, can help in creating the perfect financial plan:• The 30/30/30/10 ruleOne of the thumb rules for financial planning is a very simple rule that helps allocate your monthly income to various priorities. According to this rule, your monthly income should be divided in the following manner: This allocation of your income lets you take care of all aspects of your financial plan without any strain.• Loan EMIs: Never exceed the 30% of gross monthly incomeThe 30/30/30/10 rule also gives a direction of your liabilities. If you have loans, the aggregate EMIs of your car loan, home loan and any other liabilities you have should not exceed 30% of your monthly income. At best, this can be pushed up to 50%, but no higher. If it does, you would invariably fall into a debt trap. So, assess your EMI payments as a percentage of your monthly income. If it is more than 30-50%, it’s time to manage your debt.• (6*monthly income) for your emergency fundEvery financial plan is incomplete without the provision of an emergency fund. This fund takes care of sudden expenses which might blow your carefully planned budget and hamper your savings. The 30% of your income that you invest should also contain a provision for emergency funding. Ideally, you should direct 10% of your investments towards an emergency fund. An ideal emergency fund should have at least 6 months’ worth of your income. Many also suggest that it should have enough to fund expenses for 3-6 months. • Life Cover: The Rule of 10Just like how half-knowledge is dangerous, underinsurance can be hazardous too. Unfortunately, many make the mistake of under-insuring themselves or their family. Yet, optimal life cover is essential for providing financial security for your family. When choosing a term life insurance plan for covering your death risk, decide the coverage basis your gross annual income. Your life cover should be at least 10 times your gross annual income. Only then will you be able to create a sufficient corpus for your family in your absence.• Choose appropriate investments through the Rule of 72Do you know how long it would take for your investments to double? The Rule of 72 helps you find just that. No need for complex mathematical calculations. Just divide 72 by the rate of return promised by an investment avenue. This should give you a tentative idea of how long it will take to double your investment amount. For example, if an instrument promises 8% interest, it would take 72/8, i.e., 9 years for your investments to double. Similarly, for a 12% interest rate, 6 years would be needed to double your investment. So, use this rule to understand for how long you should hold your investment to get a 100% rate of return. • Retirement fund: Minimum allocation of 10% per month.When investing, direct at least 10% of your investments towards your retirement corpus. For a more comfortable retirement, increase this allocation to 15%. This can help you benefit from the power of compounding through long-term investments and build a decent retirement corpus. Also, ensure that your retirement corpus is at least 15-20 times your gross annual income. • Asset allocation ruleYour portfolio should have proper asset allocation depending on your risk profile. Ideally, (100-your age)% of your portfolio should be invested in Equity. In fact, this is often indicative of your risk appetite. At younger ages, a higher equity exposure can be manageable. Any volatility you face can be smoothened out over time and you can earn attractive returns. Debt allocation should, consequently, be equal to your age. Thus, as your age increases, your equity exposure can reduce and debt allocation can increase to cut down on risks. The bottom lineThese are the basic rules of financial planning which are universally applicable. When you are designing your financial plan, follow the financial planning thumb rule as mentioned above and other helpful tips to avoid mistakes.

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How well do you manage your portfolio?

Posted by Mehul Kothari | Published on 06 Feb 2019

How well do you manage your portfolio?1) How frequently do you invest?a) Regularlyb) SporadicallyCorrect answer: aAs an investor, it is necessary to invest on a regular basis in order to create a large corpus later on in life. An efficient portfolio management process can be done monthly, quarterly, or even semi-annually. Greater consistency in investments offers higher potential to earn greater returns.2) Have you made any investments that you do not understand?a) Yesb) NoCorrect answer: bIt is important that you avoid investments that you don’t understand. Warren Buffett too recommends this course of action. Invest in funds that you are well aware of, so that you are always in control of your investments. Many reputed financial institutions offer portfolio management services in India that you may want to consider.3) Diversification is:a) Necessary for a portfoliob) Unnecessary for a portfolioCorrect answer: aDiversification is absolutely necessary if you want to avoid huge losses. By investing in different asset class like gold, equity and bond, you can minimize your chances of losses in case stock markets sink. Therefore, even if one or two funds perform badly, the other funds can help compensate the total losses of the portfolio. You may want to speak to your financial advisor on the different types of portfolio management for your profile. 4) More the funds, better the portfolio?a) Yesb) NoCorrect answer: bA higher number of funds in a portfolio do not necessarily translate to better returns. It is a good practice to maintain different funds in your portfolio for the sake of diversification. But that does not mean you should populate your portfolio with a number of funds. Eventually, it could become tough to manage the portfolio overall. Speak to your financial advisor to know what is portfolio management services and how it can benefit you.5) Do you monitor your portfolio?a) Yesb) NoCorrect answer: aHaving made necessary investments, you must monitor your investments periodically to see how they are performing. Review your funds regularly in order to ensure that their performance matches your goals and expectations. In case they underperform, it may be time for a change.6) Do you alter your portfolio composition frequently?a) Yesb) NoCorrect answer: b) NoIt is important to monitor and rebalance your portfolio once in a while. On the other hand, frequent changes in portfolio composition could impair your returns. Once you have a well-balanced portfolio, it would be best not to alter it unless required. Helpful portfolio management tips from your financial advisor can go a long way in building wealth to meet your goals.7) Do you give time for the fund to deliver returns?a) Yesb) NoCorrect answer: aDifferent funds require different amounts of time to grow and deliver returns. Hence, it is essential to wait for a certain amount of time to reap in the benefits. For example, it may be unwise to dump a long term investment based on its short term performance. 8) Do you act on unsolicited investment tips?a) Yesb) NoCorrect answer: b) NoIt is important not to invest based solely on unsolicited tips. Always conduct your own research before investing in any fund.9) What is asset allocation?a) Investing in different funds to earn high returnsb) Investment strategy that helps to balance risk and returns of a portfolioCorrect answer: bAsset allocation is a strategy used by investors to maximize their returns based on their investment goals, investment horizon and risk appetite.10) Do you go for funds that are at the top of the performance table?a) Yesb) NoCorrect answer: bIt can be tempting to invest in funds that have a good track record. Unfortunately, past performance is not an indicator of future performance. Thus, investing in a fund simply because it has performed amazingly well in the past 52 weeks may not be such a good idea after all. FINAL SCORE:How did you score?0-3: You may want to read through and understand the chapter on portfolio management once again. Or, speak to one of our experts for better understanding.3-6: You’re half-way there on understanding the importance of managing a portfolio. Keep up the good work. But work on mastering the different aspects of portfolio diversification. 6-9: Excellent! Review the few wrong choices and a quick read on those chapters can work wonders for you. 10: Congratulations! You are now ready to start managing a portfolio all by yourself.

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  • IPO Process - 5 Steps for Successful Listing in India
    Posted by Mehul Kothari | Published on 14 Jan 2020

    The last two years have proven to be very fruitful for the IPO (Initial Public Offer) market. Investors have cashed in the opportunity and made huge returns in the IPO. The journey of the company to offer its shares to the public is exciting and at the same time, it also offers an opportunity to the investors to reap the benefits of IPO. Seeing the performance of recent IPOs, the attention of investors towards it is at an all-time high and they are always on a lookout for the new opportunities to arrive. When a private company decides to go public, the initial public offering process starts. The companies go public to raise a huge amount of capital in the exchange of securities. An IPO is an important stage for the growth of any company because they have access to public capital which enhances their credibility and exposure. The initial public offering process in India is regulated by the ‘Securities and Exchange Board of India (SEBI). In this article, you will learn about 5 steps of the IPO process for a successful listing on the Indian stock exchange. IPO Process in India Step 1: Selection of an Investment Banker for Underwriting Process Before understanding the IPO process, let us understand what underwriting is. Underwriting is a process in which the shares of the companies are issued and sold during the initial public offering. During this process investment bank advices and gives suggestions to the company against a fee. The investment banker understands the financial situation of the company and accordingly suggests them plans to meet their financial needs. They sign an underwriting agreement with the company. The agreement has all the details about the deal and the amount that will be raised by issuing securities. 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Apart from the company, investors can also reap the benefits of an IPO by investing in them. Since there are many risks and uncertainties associated with a company going public, good research before investment can be fruitful. The investors can compare the company with its peers and check its fundamentals before investing. An investor must also consider his risk appetite and availability of funds before investing money in the IPOs. If you are an investor and need any assistance regarding investing in the stock market, you can contact IndiaNivesh.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • IPO Allotment Status – All you need to know about IPO Allotment Process
    Posted by Mehul Kothari | Published on 14 Jan 2020

    Initial Public Offerings have been in existence for a long time. But recently they have come under a lot of limelight. In the July-September period of last year, funds to the tune of USD 0.86 billion were raised from just 10 IPOs. And as per an EY report, IPOs are expected to gain more momentum in 2020. IPOs or Initial Public Offer are the buzzwords these days. Especially after the successful ones like IRCTC and Ujjivan Bank. Indian stock exchanges (BSE & NSE) ranked 6th worldwide in the highest number of IPOs in Quarter 3 of 2019. Read on to understand the IPO Allotment process in detail. Important aspects of bidding in an IPO Before we move to the allotment, we should know some important basics about IPO bidding. These days, most IPOs take the book building route. Some important terms to be aware of: Price Band Each IPO involves a price band. It is a price range within which applicants can make their IPO bids. The upper limit (or maximum price) is s the cap price. 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The registrar also publishes an allotment document which has all the details regarding the IPO allotment such as the total number of applications received, IPO allotment calculations, etc.   Why were shares not allotted to you in the IPO? There can be three reasons for this. Invalid Bid Bids in an IPO can be rejected or considered invalid for numerous reasons. Some of these are invalid Demat or PAN details, incomplete information, multiple applications by the same person, etc.   Over Subscription Oversubscription means that the demand for the company’s shares exceeds the number of shares issued. In case of a hugely oversubscribed IPO, the shares are allotted based on a lottery. The rationale being that every applicant has an equal chance. If your name does not come up in the lucky draw, you will not be allotted the shares.   Bid Price is below the issue price IPOs following the book building route requires applicants to bid for lots as well as the price they are willing to pay. If the bid price you have submitted is less than the final issue price, you will not get any IPO allotments.   If you want to stay on top of the IPO game, a financial expert can be of great help. A partner like IndiaNivesh, who has more than 11 years of experience in the Indian markets, can keep you informed about all the upcoming IPOs and help you make the most of it.  Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • Tax Saving FD – Know About Tax Saving Fixed Deposit
    Posted by Mehul Kothari | Published on 14 Jan 2020

    Every salaried individual as well as a business person is required to pay taxes as per the income tax laws. While paying taxes, we all aim to legally save it in some way or the other. But how do we do that? It is the most confusing question for most of the taxpayers. One of the excellent ways of saving taxes is by investing in tax-saving investment schemes. They not only help you save taxes but are also instrumental in effectively achieving your financial goals. There are many investment avenues available in the market that either offer tax exemption or tax deduction. Having said that, selecting the most suitable and right tax-saving investments may not come easy for everyone. While choosing the right scheme, one needs to access several factors such as safety, returns and liquidity, among other things. A very popular tax-saving investment option among taxpayers is investments under section 80C. As per section 80C of the Income Tax Act, 1961, investments of up to Rs. 1.5 lakhs can be claimed as a deduction. Tax saving fixed deposit is a type of fixed deposit where you can get a deduction of maximum Rs. 1.5 lakhs under section 80C. To arrive at the net taxable income, the amount invested in tax saving FD is to be deducted from gross total income. Let us learn about some of the important points that you must consider before investing in tax saving FD. Things to Know About Tax Saving Fixed Deposit Investment in tax saving FD can be done by individuals and Hindu Undivided Family (HUF) only. The minimum amount for fixed deposits varies from bank to bank. Income tax saving FD has a lock-in period of 5 years. You cannot make premature withdrawals and loans against these FDs. Investment in these FDs can be made only through private or public sector banks. Rural and co-operative banks are not eligible for these FDs. Tax-saving fixed deposits can be held in ‘singly' or 'jointly'. When the holding is in joint mode, the tax benefit is available to the first holder. Tax saving FD interest rates vary from bank to bank. The interest rate ranges from 5.5% – 7.75%. However, note that some banks offer higher rates on FDs to the senior citizens. These fixed deposits have nomination facilities. The interest earned on the income tax saving FD is taxable according to the investor’s tax bracket. The interest on tax saving FD is payable on a monthly or quarterly basis. The main advantage of investing in tax saving fixed deposits is that they are less risky in comparison to equities. Since many banks offer this type of FD, let us learn about its details. Banks and Income Tax Saving FDs SBI Tax Saving FD Tax saving FD interest rates of SBI is 6.25% for general customers and 6.75% for senior citizens. The maximum deposit in a year is Rs. 1 lakh and the minimum deposit is Rs. 1,000. By using a tax saving FD calculator you can know the amount receivable after the lock-in period of 5 years depending on the maturity period of your FD.   HDFC Bank Tax Saving FD Tax saving FD in the HDFC Bank can be opened with a minimum amount of Rs. 100. The maturity period of this FD is 10 years. Tax saving FD interest rates is 6.30%. Senior citizens get an added benefit of 50 basis points over general customers.   ICICI Bank Tax Saving FD The interest rate on tax saving fixed deposits at the ICICI Bank to the general customers is 6.6% and for senior citizens, the interest rate is 7.10%. These rates are applicable to FDs having a maturity period of 5 to 10 years. The maximum amount that can be deposited is Rs. 1.5 lakhs and the minimum amount for opening tax saving FD at the ICICI Bank is Rs. 10,000.   PNB Tax Saving FD Punjab National Bank offers an interest rate of 6.30% on a five-year tax saving FD. The minimum amount for opening tax saving FD at the PNB Bank is Rs. 5,000.   Bank of Baroda Tax Saving FD Bank of Baroda offers an interest rate of 6.30% on a five-year tax saving FD.   The Bottom Line The above mentioned are the basic details about the major banks that offer income tax saving FDs. You may access each individual option carefully and select the suitable one after doing good research. You can find all the basic information on the bank’s website. If you want to find out the returns that you will be earning from the fixed deposit, you can access the tax saving FD calculator and find out the returns by entering your fixed deposit details. If you want to learn more about income tax saving FD or want to learn about other investment options, you can contact IndiaNivesh. We are among one of the most trusted and value-enhancing financial groups in India.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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