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Author: DV-Mint

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5 Most Common And Avoidable Tax Saving Mistakes

Morgan Stanley’s advertisement on tax-saving showed a catchy line, “You must pay taxes. But no law says you have to leave a tip.” The ad highlighted the importance of not ignoring the opportunity to legally save on taxes. Because, the lower amount of taxes you pay, the greater is your disposable income.

 

Mistake 1: Delaying Tax Saving Planning Till March

Many people delay executing a tax-saving plan until the end of a financial year, i.e., March. However, this is far from a good strategy. The truth is that the sooner you start working on your tax-saving planning, the better.

 

For instance, if you invest money in your PPF account in the first month of the financial year, you will receive a lot more tax-free interest for the year than investing the money in March.

Similarly, starting financial planning early in the financial year allows you the convenience of investing in an ELSS fund via the SIP route. Otherwise, you will have to put a large chunk of money later in the year. And this can be pretty troublesome from a cash flow perspective. Moreover, you may also end up borrowing money from credit cards to invest, which is a horrible idea.

So, don’t make the mistake of waiting until March to start your tax planning.

 

Mistake 2: Tax Saving Is Only About Investing

People often assume that tax saving is only about investing money in tax-saving products. It happens because much of the marketing effort is attracting your attention to products like ELSS, tax-saving fixed deposits, insurance policies, etc.

However, investing is only one part of sound tax management. The other important part that doesn’t receive due attention is how you manage your spending. Income tax laws allow for several deductions from your taxable income for certain expenditures that you make. For instance, payment of children’s tuition fees, health insurance premium, repayment of home loan, education loan, and house rent are expenses that quality for a tax deduction.

As a taxpayer, you need to explore all such tax-saving options to determine what works best for you. The more prepared you are with the tax laws, and the sooner you act on them, the better are your chances of minimizing your tax outgo.

 

Mistake 3: Not Evaluating Enough On Tax Saving Products

You can evaluate every tax-saving investment option on three broad parameters. The first parameter is liquidity, which simply means the ease you can access and withdraw your money when you need it. In this regard, you must have a clear understanding of the instrument’s lock-in period in addition to the premature withdrawal rules, including its taxability and penal charges.

The second broad parameter when evaluation a tax-saving financial product is the risk of losing money. Some investments are inherently volatile. And these are generally the investments that have some component of equity in them.

INSTRUMENT UNDERLYING ASSET CLASS RISK (LOSS OF CAPITAL) EXPECTED RETURNS *
Public Provident Fund Debt No 7 – 8%
Equity Linked Saving Scheme (ELSS) Equity Yes (Moderate) 12 – 14%
Sukanya Samriddhi Yojana Debt No 8%
National Savings Certificate Debt No 7%
Post Office Time Deposit Debt No 7%
Bank Tax-Saver Fixed Deposit Debt No 6 – 7%
National Pension System (NPS) Equity & Debt Yes (Low) 8 – 12%
Unit Linked Insurance Plans Equity & Debt Yes (Moderate) 7 – 12%

* Estimates Based On Historical Performance; May Not Sustain In The Future

That said, it is also crucial to factor that the presence of equities allows instruments like ELSS, ULIPs, and even NPS to offer inflation-beating returns over the long run. So as an investor, you need to ask yourself how comfortable you are in tolerating some volatility in the portfolio to make more returns.

Finally, the third parameter you need to consider when picking tax-saving products is their post-tax returns.

INSTRUMENT TAXATION
Public Provident Fund Tax-Free
Equity Linked Saving Scheme 10% Tax Payable On Long Term Capital Gain Exceeding ₹1,00,000
Sukanya Samriddhi Yojana Tax-Free
National Savings Certificate Interest Earned Is Taxable
Post Office Time Deposit Interest Earned Is Taxable
Bank Tax-Saver Fixed Deposit Interest Earned Is Taxable
National Pension System 60% Maturity Is Tax-Free; Rest 40% Goes To Annuity Which Is Taxable
Unit Linked Insurance Plans Mostly Tax-Free Except Where Annual Premium Exceeds ₹2,50,000

Investors generally check for tax benefits in terms of the deduction it allows. For example, a PPF or ELSS offers deduction under Section 80C. NPS provides a little more.

But what’s equally important to understand is the taxation on the income earned by that asset. And also how the maturity proceeds and early withdrawals will be treated from a taxation perspective.

Understanding these aspects can not only help you zero in on the right investment product, but it can improve your post-tax returns as well.

A big problem with not having an acceptable awareness or knowledge of tax-saving instruments is the inherent inefficiency in the planning process. This inefficiency often passes down as a legacy from parents and other well-wishers.

Consequently, many investors continually invest in LIC policies and other small saving schemes that typically struggle to beat inflation. While such investments with subdued returns can help you save some taxes in a particular year, you may end up wasting a lot more in potential returns on your money by investing in these products.

 

Mistake 4: Investing In Insurance-Cum-Investing Products

Every year in March, millions of Indians blindly invest in traditional life insurance plans like endowment and money-back policies to save taxes.

Such is the last-minute rush that life insurance companies have effectively marketed the month of March as India’s tax-saving season. And it should come as no surprise that insurance companies rake in around 20% of the entire year’s traditional life insurance policy sales.

Now, from a utility perspective, these insurance-cum-investment plans offer meager returns and often struggle to catch up with the long-term inflation rate, which is about 6%. Not just that, these products deliver lower returns than what a PPF, National Savings Certificate, or other small savings schemes offer.

Additionally, these insurance plans come with an investment commitment that runs from 10 to 20 years, and any attempts at a premature withdrawal or policy closure attract a heavy penalty.

 

Mistake 5: Not Diversifying Your Tax Saving Investments

All the tax-saving products come with lock-in requirements. As a result, they seldom align with your short-term financial goals. That is why you must understand how these investments fit within your overall long-term financial goals.

Most individuals rarely look at their investments in PPF, EPF, and other instruments as part of their overall financial portfolio. In effect, such investors grossly miscalculate their asset allocation.

Consequently, they invest less in the equities and miss the chance to accumulate a bigger corpus in the long run. While they think they are in a particular risk profile, unfortunately, their investments are stuck in a different risk basket.

 

Conclusion

Tax planning investments are no different from conventional investments. The basic principles such as asset allocation or diversification apply to managing tax-saving investments as well. Now that you know the most common and avoidable tax-saving mistakes, you can reflect on how you work your tax-saving activities.

Source:etmoney.com

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Do I Need A Term Insurance If I’m Healthy

You often plan for your rainy days, your financial goals, your retirement, but forget to value what you really have, i.e., the present. You need to invest in your present in order to secure your future. This means that even if you are healthy today, you need to invest in a term insurance plan in order to ensure your family’s financial security in your absence. You don’t know what happens to you or your loved ones the next minute. There’s a possibility that your health deteriorates in the future or when you get old. Thus it’s good to buy a term plan now before it gets too expensive or you become uninsurable. Besides, here’s a list of reasons that shows why is it important to buy a term insurance plan irrespective of the state of your health.

 

 
Easy to understand

 As compared to other life insurance plans, term plans are easy to understand. All you have to do is pay your premiums and get insurance coverage for the term period chosen by you.

 

Affordable

If your budget is tight, then it’s ideal to buy a term insurance plan as it costs less than other insurance plans. Moreover, term insurance is good for a person who has a low income but needs higher coverage.

 

Tax benefits

This is yet another significant benefit of buying a term insurance plan. Not only premiums paid for term insurance are less, but they are also eligible for tax benefits. You get to enjoy tax benefits on the premiums that you pay towards the term insurance plan as per Section 80C and Section 10D of the Income Tax Act, 1961. Tax benefits under the term insurance plan are as per prevailing tax laws that are subject to time to time amendments.

 

Lower premium rates

The premiums paid for term insurance plans are much less as compared to other plans. Therefore, buying a term plan is the best option for someone who gets a moderate income and is the only breadwinner in the family.

 

Spousal cover

You get the option to cover your partner under the same policy.

 

Financial security

It is important to have a term insurance plan if you are the only breadwinner in the family as a term plan offers coverage to your family if something unfortunate happens to you.

It offers financial coverage that takes care of your family’s financial liabilities in your absence. Thus, if you don’t want your family to compromise on their lifestyle in the future, then it’s good to buy a term insurance plan for your family.

 

Flexible premium payment option or term

A term insurance plan also gives you the flexibility to choose your premium payment option. Premium payments can be made either monthly or annually, depending on the choice of the policyholder. Also, you get the flexibility to choose your premium payment term that ranges from 5 years to 40 years.

 

Rider benefits

Term insurance plans also come with add-on coverage options if you want to enhance the coverage of your policy. You can easily get a rider by paying some additional cost along with the basic premium of the policy.

 

Whole life coverage

A term plan offers financial security for a longer period of time. You get the life coverage option of up to 80 years along with in-built death and terminal illness death benefits.

 

On the whole, investors need to know that term insurance plays a very important role in your financial planning.

Source:canarahsbclife.com

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7 Ways Smart Spenders Save and Invest Their Money

Spend today, or save for tomorrow? The former gives us a rush of instant pleasure, while the latter helps us build a solid future for ourselves and our families. However, what’s the point of putting in long hours at the office if you cannot enjoy the fruits of your labour – at least partially? The key lies in maintaining a balanced approach between saving and spending so that one act does not cannibalise the other. Also, it’s essential to invest in mutual funds through SIP’s to let your ‘savings’ compound and grow over the long term. Here are seven things all smart spenders tend to do. You should, too!

 

1.    They save first

While reckless spenders indulge themselves to their content the day their paychecks hit their accounts, smart spenders save for their financial goals first. They’ve usually got a well-documented financial plan in place,

and with it, they have a fair degree of awareness about just how much they need to put away each month to make these dreams a reality. Having saved first, smart spenders enjoy the luxury of ‘guilt-free spending’.

 

2.    They have a written budget in place

The boring old budget is the bedrock of the smart spender’s financial plan. By earmarking sums of money each month for things such as home purchases, dining out, electricity, fuel, and the like, they inadvertently follow the tried and tested ‘coffee can’ system of bucketing monthly spending.

If they exceed their budget in one category in a given month (say, a great play hits but the tickets cost a bomb), they cover the deficit by scrimping on another one ( clothes bought for one month never killed anyone!).

 

3.    They ‘sleep’ on large purchases

Smart Spenders avoid the infamous “buyers regret” syndrome by delaying the impulse to make big-ticket purchases before properly thinking them through. Tempting as that 100-inch flat-screen TV seems to them as they stroll past it in the mall, smart spenders will rarely succumb to the impulse buy.

Instead, they’ll head home and contemplate the purchase decision and its ramifications with the mind. If it still seems good tomorrow, they’ll head right back to the mall and buy it!

4.    Occasionally, they observe ‘fiscal fasts’

 

Smart spenders are known to go on self-inflicted ‘fiscal fasts’. These purchase hiatuses could last from a few weeks to a few and can be very cathartic indeed. By restricting themselves to only spending on ‘needs’ and not ‘wants’ for a few weeks in a year, smart spenders effectively deleverage themselves – scaling back on money-draining, costly credit and stabilising their financial situations in the process.

In doing so, they also build their willpower to resist impulse purchases that could potentially set off a vicious cycle of unhappiness-inducing credit.

 

5.    They don’t bother with ‘keeping up with the Jones’s

Smart spenders understand that buying things merely to impress others is utterly futile, and akin to a never-ending race with a constantly shifting goalpost. They buy things with the singular intent of making themselves happy.

They never overextend their finances and spend their future incomes by taking on expensive personal loans or strapping on EMIs on their credit cards. In other words, they spend what they have, and for themselves alone.

 

6.    They know that saving isn’t investing

Smart spenders understand that saving money alone won’t make them rich unless they invest it fruitfully. Instead of procrastinating their investments, they deploy their savings into mutual fund investment plans through SIP’s, to secure their financial futures. Without curtailing their financial freedom, they invest in mutual fund SIP’s, which allow them to amounts as small as Rs. 500 per month.

 

7.    They believe in ‘tax-saving’ wealth creation

Smart spenders invest in tax-saving mutual funds and enjoy ‘tax-saving wealth creation’. They start their SIP’s into tax-saving mutual funds early on in the financial year and enjoy deductions under Section 80(C) in the process.

Smart spenders usually choose ELSS mutual funds over traditional tax-saving instruments, which give them the dual benefits of tax saving and wealth creation.

 

Source:finedge.in

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6 Benefits of Health Insurance.

A health insurance policy is primarily designed to cover you financially in case of a medical emergency caused by illnesses, accidents, or hospitalization. It has long-term benefits that make taking a health insurance policy a definite goal in your annual financial plan.

Let’s look at how a health cover can benefit you.

 

Hospitalization Cost

One of the most pertinent benefits of a health insurance policy is that it covers expenses for hospitalization, whether it is for accidental injury, daycare expenses, capping on room rent, or illness.

 

Pre-and Post-Hospitalization Expenses

When an individual takes treatment at a hospital, there are a series of visits by doctors along with the diagnostic tests that are required to be done for you before you get treated as well as after. These expenses are considered by certain health covers also transport costs.

 

Cashless Treatment

Generally, insurance companies have tie-ups with hospitals, known as network hospitals that offer cashless treatment to the insured in case of hospitalization. These hospitals reimburse the expenses related to treatment availed by the insured. This means you can avail of treatment at these hospitals without paying anything for the medical expenses.

 

Health Check-Ups

Health insurance plans are designed to primarily take care of financial stress in case of a medical emergency. However, insurers also want people with good health in their portfolios. To ensure an individual is aware of their health, most health insurance plans offer preventive health check-ups every year

 

No Claim Bonus

Health insurance not only covers the medical expenses of those who have to seek hospitalization for illness or accidental injury but also rewards those who do not have to avail the benefits of health insurance and do not make a claim in the policy period. A “No Claim Bonus” can be earned up to 100% of the original sum insured in the policy.

 

Income Tax Rebate

While an individual pays the insurance premium for health insurance, there is an immediate financial benefit in the form of income tax rebates on premiums paid by an individual. In India, health premium rebates are as follows:

. Health insurance for self and family (spouse and children) is INR 25,000.

.If an individual or spouse is 60-years old or more, the deduction available is INR 50,000.

Source: forbes.com

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In Your Thirties? Avoid These Common Retirement Planning Mistakes!

Are you in your thirties right now? Your retirement may seem a long way away today, but this is really the best time to start planning for it – if you haven’t already. A multitude of factors is increasing the need for maintaining structured, disciplined, and committed action towards your retirement portfolio. Here are four mistakes to avoid on your journey.

Planning only for your Child’s Education

There’s nothing wrong with aspiring for a great education for your child, but it would be a mistake to shovel away every last saved penny towards your child’s education, without paying heed to your own retirement. Remember, you’ll be able to avail education loans for your child’s education, but not for your own retirement. The interest on these loans is fully tax-deductible too. Also, would you really like to become a financial burden on your kids at a time when they’re just finding their feet in their careers?

Being a Low-Risk Taker

When it comes to Retirement Planning, don’t think twice – just divert your regular retirement savings (such as Mutual Fund SIP’s) into an aggressive investment such as a mid-cap-oriented equity fund anyhow. When it comes to Retirement Planning, high risk/ high return Mutual Funds Sahi Hai! If you allow your individual risk tolerance to dictate your choice of retirement savings avenue, you could end up retiring with lakhs of rupees – if not crores – less. Be careful, as a 5-6% difference in annualized returns compounded over three decades, is a lot more than you think.

Choosing the NPS over Mutual Funds

Sure – the NPS is a low-cost investment and represents a massive improvement over traditional endowment life insurance plans and fixed deposits, but they need more reforms before they can become your one-point retirement solution. For one, the NPS bars you from taking more than a 75% exposure to equities. In addition, your equity allocation is mandatorily slashed by 4% every year after your 35th birthday, and this can hamper your long-term returns. While the NPS is definitely worth considering, make sure that the lion’s share of your retirement savings still flows into Mutual Funds.

Getting stuck into a Pension Plan

Buying a pension ULIP is an avoidable step on your retirement planning journey. After all, when your pension ULIP matures, you’re permitted to withdraw just 1/3rd of the funds tax-free under section 10(10D) of the income tax act. The remainder, you’ll need to put away in an annuity that’ll give you a post-tax annual yield of just 5-6%, depending upon your tax bracket, and the option you choose. Just stick with regular Mutual Funds or bluechip stocks during the accumulation phase.

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Why Is The Stock Markets Falling In India: Two Important Reasons.

Stocks markets in India are experiencing a downward trend in December. On December 6, Monday, NIFTY 50 has fallen by 284.40 points and SENSEX has fallen by 949.32 points, which has worried investors today and for the upcoming weeks.

 

Omicron

The most important reason, because the stocks markets in India are falling, is the new Covid variant named Omicron. In India, a total of 21 cases have been detected that were infected from the Omicron Covid variant, and on Sunday, December 5, a total of 17 fresh cases were reported from Delhi, Maharashtra, and Rajasthan. So, Indian investors are much worried about the inception of another wave from the new variant. The earlier delta variant has already affected the Indian stocks markets largely. During the first two waves, major manufacturing activities were hampered, profits of the companies drowned. Sectors like automobile, real estate, constructions, infra have plunged.

On the other hand, pharma, and IT stocks have gained. In that situation, Indian investors are concerned that if a new Covid variant again surges in the country, affecting the companies.

 

So, the stock indexes fell significantly today. However, India has reported 8,306 new Covid cases yesterday, and the active cases are 98,416 now. This is the lowest contamination rate in the last 552 days, according to the health and family welfare ministry. So, equity investors are struggling for clarity, should they think the pandemic is under control, or will the Omicron rise as a big threat?

 

Inflation

 

The second reason behind this fall is inflation. Indian central bank, the RBI is having its Monetary Policy Committee (MPC) meeting today. The MPC on December 8, will declare its monetary policy, and how are they thinking about the high inflation rate in the country. Surging inflation will drag down customers’ purchasing capacity, which will be a stress for the companies. India’s present CPI inflation is 4.48%, and the headline inflation in the US is above 65, which is the highest in the last 30 years.

Hence, the rising inflation rate is concerning investors more, according to analysts. Commenting on inflationary pressures and bearish trend of the stock markets, Nikhil Kamath, co-founder of Zerodha told English news daily Mint, “Fear surrounding the new variant may lead to travel restrictions and lockdowns,

which can, in turn, reduce oil demand, thereby cooling off inflationary pressures to some extent. The biggest risk to the markets according to me isn’t this but inflation. I believe it’s best to stay defensive until a clear trend emerges.” He also believes that during the pandemic many stocks have gained significantly, and “Omicron alone can erase all those gains”.

Source: goodreturns.in

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Why you need a Financial Advisor – now more than ever!

History tells us that stocks tend to outperform all asset classes over the long term. But while paper returns from equities and equity mutual funds remain strikingly impressive, the unfortunate reality is that few investors end up reaping their rewards to the fullest possible extent. 


More often than not, the reason for this dichotomy between published and actual returns is the lack of support of a qualified, competent, and unconflicted Financial Advisor acting on your behalf.


The need for support from a Financial Advisor becomes all the more pronounced during times like these. Gripped with COVID-19 induced panic, markets have turned fiercely volatile – and most portfolio values have sunk deep into the red. 


Even the haven of debt funds has proved fickle. As an investor, your mind will undoubtedly be spinning with a hundred questions. Should you stay invested or redeem? Should you switch your money to less risky assets… or switch your money into more risky assets? Will markets continue to fall further? Should you rebalance your portfolio at this time? Should you stop your SIPs and restart them at a more opportune time? And, so on and so forth. 


In testing times like these, a Financial Advisor can help you stay on the straight and narrow path to wealth creation. Here’s how.


Saves you from Yourself

Guess who is your worst enemy when it comes to creating wealth from your investments? The answer is – you, yourself! As markets oscillate between the depths of pessimism and the heady heights of euphoria, even the most seasoned investors fall prey to greed, fear, and a host of other behavioral traps. 


By drawing upon their experience of past market cycles, seasoned Advisors can help you sidestep regrettable investment decisions such as bailing out at market bottoms or piling on investments near market tops.


Steers you clear of Avoidable Investments

It’s a sad truth that a poor investment is always lurking around the corner. From the ULIP saga of the 2000s to the YES Bank AT-1 bond write-off crisis this year, investors often tend to fall prey to bad investments – usually goaded by salespeople masquerading as Financial Planners. 


Having a trusted Financial Advisor who can trawl through the fine print on your behalf can be a great source of strength for you, as you’ll be able to steer clear of getting locked into poor investments that can end up destroying a great deal of your hard-earned money over the long term.


Helps you see the Bigger Picture

By aligning your investments to your long-term and short-term goals, A Financial Advisor can help you see the bigger picture concerning your investments. In ensuring that you invest according to a fixed roadmap with pre-defined time-bound milestones, your Advisor can ensure that your investments are perfectly aligned to the tenor of your goals; hence, only long-term money flows into higher-risk assets. 


As a result, you’ll be a lot more immune to the ups and downs of the markets, because your perspective on investing will be dramatically and positively altered.


Helps you pick the right investments

Left to their own devices, most investors tend to use short-term past returns as the barometer for choosing investments. However, this myopic tendency is the exact opposite of ideal, because what goes up comes down – and vice-versa! 


Using their expertise and drawing upon concrete research that is generally not available in the public domain, a Financial Advisor can ensure that you select the right investments for your portfolio. 


In doing so, your Advisor ensures that your portfolio is spread across investments that are poised to outperform in the future and deliver fantastic risk-adjusted returns to you over your defined investment timeframe.


Get in touch with us today to begin your journey to Financial Freedom!


Source: Finedge

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5 Benefits of Term Insurance

You may weave countless financial goals in your lifetime. Then work out the math to build financial strategies around them. But life itself is unpredictable. An untimely death can not only jeopardize these goals but can leave your family high and dry.  


In such difficult times, though no amount of money can replace the absence of a dear one, term life insurance financially protects your family in your absence.

 

1. Term Insurance Plans are very simple to understand

Simplicity is one of the reasons for the growing popularity of term insurance. Term life insurance is a pure life cover that focuses on offering your dependents the sum assured in case you were to die. All you need to ensure that the premium is paid on time.


2. Term insurance plans are supremely affordable

The premium for a term life insurance plan is as low as 0.1 percent of the total sum insured. Now consider this, we pay about 2 percent of the car’s present value as its premium. Moreover, online channels like ETMONEY provide an extra discount on your term insurance premiums as compared to offline channels.


3. Term Plans offer much higher coverage compared to traditional plans 

The total sum insured for traditional, ULIP, or endowment policies is about  7 to 10 percent of the yearly premium. So for example, if you buy one of the plans mentioned above for a yearly premium of Rs 20,000, you get a coverage of Rs 2 lakh which will barely cover your family’s expenses for a few months.


Meanwhile, a term plan offers a much higher sum assured so that you can leave your family and dependents enough money that they don’t go through financial hardship in your absence. An average sum assured for a term life insurance policy is a little over Rs 1 crore which will cost you somewhere in the Rs 10,000 to Rs.17,00 range. That is, the coverage provided by term insurance is about 60 times higher as compared to traditional, ULIP, or endowment policies.


4. Term plans come with a host of tax benefits

While the primary reason for buying term insurance is securing your family’s future, you also get to save tax with them. Let’s look at its 3 term life insurance tax benefits.


Section 80C: Under this section, you can claim a deduction up to Rs 1.5 for certain investments and purchases, which includes the premium amount you pay towards the term life insurance plan.


Section 80D: This exemption is allowed on the premium paid towards health-related coverage like critical illness riders. You can claim deductions up to Rs 25,000 for the premium paid towards it.


Section 10 (10D): In the case of term life insurance, this benefit can be claimed while claiming the payout. The entire amount is completely exempt from taxes.


5. Premiums are locked for the duration of the plan

When you purchase a term insurance plan, you are effectively locking the premium you will be paying this year, next year, and every other year till the end of the plan. And this is where it becomes highly beneficial for you if you start your term plan as early as possible when premiums are lower at the younger ages. 


Let’s illustrate this with an example. So if you are buying a term plan (let’s consider that the coverage is Rs 1 crore till the age of 75) at the age of 30, you would pay a premium of about Rs 10,000 every year. 


That is, you would pay Rs 4.5 lakh in total. But, if you buy the same plan at 45, you would be paying a yearly premium of around Rs 30,000 The amount you pay toward the term plan in the next 30 years would be Rs 9 lakh.


Conclusion

As discussed in the article, term life insurance has several benefits. It provides higher coverage for a lower premium, it’s simple to understand, and comes with immense tax benefits. But before factoring in all the benefits, you should remember the core objective of insurance is protection and not savings. 


Unlike most life insurance products, term insurance remains true to this objective.


Source: Etmoney

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How to use Mutual Funds for Retirement Planning

When it comes to Retirement Planning, Mutual Funds Sahi Hai! No investment instrument’s as flexible and customizable as Mutual Funds can be adapted to optimize your Retirement Planning goal at its various stages. Here’s a simple guide to using Mutual Funds to achieve your Retirement Planning Goal effectively and efficiently.


The Early Stages: SIPs in Equity Funds

The best time to start planning for your retirement is when you take up your first job and receive your first paycheck.  


After all, the money you put away at this stage of your life will have not years, but decades to compound and grow! During the early stages of your Retirement Planning, make sure you run SIP’s (Systematic Investment Plans) in aggressive funds such as small & mid-cap funds, without paying much heed to market volatility or even your risk tolerance.


The Mid Stages: Aggressive Step Ups

When you’ve spent a decade or so in your career, you’ll likely start witnessing some serious bump-ups in your income levels. This is the time that you should be stepping up your monthly SIP amounts aggressively. 


Unfortunately, left to your own devices, you’ll probably keep putting off this well-intentioned step up for a ‘better time’. A solution to this procrastination is to issue a standing instruction to the Mutual Fund to increase or “Step Up” your monthly SIP installments every year automatically.


Pre-retirement: STP’s into Debt Funds

When you’re 3-5 years away from your retirement, you’ll likely have accumulated a sizeable corpus if you’ve been disciplined in running your Mutual Fund SIP. However, your priority right now will be to safeguard your hard-won capital and ensure no erosion in its value. 


Therefore, this is the time that you should say “Debt Mutual Funds Sahi Hai” and start STP’s (Systematic Transfer Plans) from your Equity Mutual Fund investments to lower risk fixed income funds! By staggering your investment out of equity funds, you’ll end up averaging your exit cost, and ensuring that you get a fair value for your units and don’t risk cashing out at the bottom of a cycle.


Post Retirement: SWP’s from Debt Funds

Once you’ve retired, the lion’s share of your corpus will be parked into debt-oriented mutual funds, and your overarching objective will be to generate a reliable, constant income stream from it to meet your day-to-day expenditures. 


For doing this, you should start an SWP (Systematic Withdrawal Plan) from your debt funds to the tune of your monthly requirement. SWP’s are a tax-efficient means of generating post-retirement income and are highly flexible. With proper planning, they should help you sail through your retirement years comfortably!


Source: Finedge

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Insurance mis-selling: Five factors to distinguish advisors from salespersons

A lot of people complain of social media about being victims of insurance mis-selling, especially from their family members or friends. They want to continue buying from financial advisors but don’t know how to find a good one.


It is no secret that the insurance business runs on commissions. Whether you buy your policy through a financial advisor/ insurance agent or an online portal, in the end, the entity making the sale earns a hefty cut on your premium amount. 


That is why it is easy to assume that anyone who’s selling you a policy works with a single motive of commissions. However, this might not be the case always.


No matter where you’re buying insurance from – you need to feel confident that the person advising you has your best interest in mind – and isn’t suggesting a poor-quality product just because it brings them a good commission. You must understand whether you’re dealing with an advisor who is on your side, or simply a salesperson, who cares for nothing except his commission.


Here’s a quick guide to how you could go about knowing the difference.


1. A good financial advisor will focus on your goals

Salesmen talk ‘products’. Advisors talk about ‘solutions’. If the person sitting across the table is pushing a product without even knowing about your financial background, needs and goals, it is very likely that the person is a salesperson – not a financial advisor. An advisor plays the role of a partner – someone who understands your requirements – and matches products from the market to fit those needs. (And not the other way around).


2. A good financial advisor will explain, give you time to decide

Salesmen are in a hurry. Advisors will give you time. An advisor advises. They help you with data, facts, and their experience – and enable you to decide on purchasing a product or skipping it. As a guide, it is their job to inform and empower you – not make decisions for you. A good advisor is conscious of not being seen as a salesman. If someone is pushing you to make a quick decision – that you’re not completely comfortable with – you might be looking at a salesperson.


3. A quality financial advisor will tell you if you don’t need a product.

Not every product is a great one. And not every product is right for you and your family. You need an advisor who will tell you when you don’t need a particular product – even if it means they don’t earn that commission.


Salesmen will jump into a ‘Sales’ mode as soon as there is an opportunity. They don’t exactly care whether you need a product or not. Unfortunately, their earnings (incentives and commissions) are directly linked to the sales they pull off – and so, they would be willing to sell you any product – whether you need it or not.


4. A good financial advisor will be there with you, throughout

Before you buy the policy, a good advisor will make you and your family understand the policy terms and conditions, inclusions, and exclusions clearly. They will resolve any queries you might have and guide you through the purchase journey. 


Further, at the time of claim, it is the same financial advisor who will be on your side – help in filling up the claim form, documentation, and other things. They will also follow up with the insurer on your behalf, and ensure that you (or your family in the case of term insurance) have a seamless experience.


In the case of a salesman, things change as soon as the sale is made. The same person who was constantly chasing you to buy the policy might even start ignoring you. And they might not be accessible to you when you need them most – at the time of claim.


5. A good financial advisor will prioritize reputation over commissions

For an advisor, building a reputation is more important than earning a higher commission. This makes more business sense for them – as they are likely to build long-term relationships with families – and sell multiple products over years through your references. Hence, they will genuinely be interested in building a good relationship with you and inclined to provide a good service and earn your goodwill.


A salesman doesn’t care about building a reputation or a relationship with you. Once you purchase from them, your case will move from the ‘post-sales service team and you’ll likely never speak to the person who sold you your policy again. Even if the salesman calls you once in a while, it will mostly be for a new product offer or a deal that is valid for a ‘limited period’.


So, how should you find a good advisor?

An insurance plan is a long-term purchase and impacts your family’s financial security forever. It is important to have a partner who will work with you, guide you, and help you make informed decisions. Further, you need a support system to step in to be on your side, even fight on your behalf – to ensure the claim amount comes through.


When it comes to term insurance, you won’t even be around when the time of the claim comes. You need someone your family can rely on.


Here are five things you must remember while choosing a financial advisor:


-Work with an advisor who has at least five years of experience, and has taken up financial advice as a full-time job.


-The purpose of insurance is protection against financial risks. So, find someone who will discuss protection and risk management first – and not look at insurance as an investment instrument.


-Work with an advisor who begins with a need-analysis – and does not simply jump to a list of products they’re selling, or share brochures.


-Find an advisor who comes with good references and an excellent track record. If you’re meeting them for the first time, ask for references from previous clients to get a better picture.


-Work with someone who will support you from purchase to claim, and own the service experience throughout. You want a partner for the long-term and not just a salesperson.


Source: Moneycontrol

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