Financial Planning – Page 10

October 12, 2020

9 things to know about Sovereign Gold Bond

The seventh(7) series of Sovereign Gold Bond Scheme 2020-21 will open for subscription today (12th Oct 2020). The price of the latest SGB issue has been fixed at Rs 5,051 per gram of gold.

Investors applying for the issue online will get a discount of Rs 50 per gram. So the price for them will be Rs 5,001 per gram. The issue will remain open for one week through October 16.

The latest SGB issue comes at a time when gold prices have corrected over 12% from its August high of Rs 56,200 per 10 grams.

9 things to know about Sovereign Gold Bond

1) Gold bonds have a maturity period of eight (8) years with an exit option after the fifth year. However, if an investor is eyeing an exit before the lock-in period of 5 years, they can always get out of the bonds by selling it on stock exchanges. The redemption price is based on the then prevailing price of gold.

2) Price of the issue has been fixed taking the simple average closing price for gold of 999 purity of the last three business days of the week preceding the subscription period. The price published by the India Bullion and Jewellers Association Ltd is used for this purpose.

3) One can apply for a minimum of 1 gram gold in the issue. An Individual and a HUF can invest up to four kg in SGBs in each financial year. Other eligible entities can invest up to 20 kg in a year. These bonds can be bought from banks, Stock Holding Corporation, post offices, and recognized stock exchanges.

4) Any resident under Foreign Exchange Management Act (FEMA) can invest in SGBs. An individual, HUF, trusts whether a public or private and university can invest in SGBs. Even investment on behalf of a minor can be made by his guardian. An NRI cannot invest in these bonds but is allowed to hold these bonds received as a nominee of a resident investor.

5) If you hold SGBs till maturity, there will be no capital gain tax on the investment. Further, you will get an interest of 2.5% annually, which will be paid on a semi-annual basis.

6) SGBs are a superior alternative to holding physical gold. Also, there is no risk of theft, and the costs of storage are eliminated in the case of SGB.

7) SGBs are issued by the Reserve Bank of India on behalf of the government.

8) Documents that are required for applying these bonds are Voter ID, Aadhaar card/PAN, or TAN /Passport.

9) Unlike in physical gold, GST is not levied on SGBs.

SGBs should be a part of your investment portfolio as it helps in diversification. According to us, 5-10% of an individual’s portfolio should be invested in gold.

September 29, 2020

7 Things to do when your Mutual Funds are in Red

When investors seek higher returns, they invest in equity mutual funds. A higher return comes with a cost, in equity it is Volatility. Mutual funds are affected when the markets are volatile and this is why your mutual funds are going up & down.

Now many times when the market is volatile, such as now, investors panic and take decisions that may not be in their best interests. If you are an investor and wondering what to do with your investments in this situation, here are 7 things you can do instead.

Keep Calm
This is the absolute first step to successful investing.
The stock markets usually perform well over a long period. In the short term, volatility causes the price to go up and down.

While you can lose money in mutual funds due to short term market disturbances, if you look at the long term, instances of negative returns drastically reduce after 3-5 years of holding.

If you have a longer time horizon of say 7-10 years, you need not get disturbed by the news around and lose your calm. Don’t let the noise get to you.

Avoid Redeeming In Haste
Can you lose money in mutual funds in falling markets? Yes. But does this mean you should redeem your investments? No. Think twice before redeeming your money the moment you see the markets perform poorly.

Certain investors believe they can take their money out of a mutual fund when its value goes up and then invest again when the value starts going down. This sounds good in theory but usually does not turn out well.

What happens most of the time is that people take out their money from a mutual fund and wait for the right time. But more often than not, the timing isn’t perfect. What ends up happening is that people sell when the price falls.

And then, when they plan to invest again, they invest at a price higher than what they sold their mutual funds for. This hurts the long term wealth creation process.

So decisions like redemption should not be a factor of current market conditions. Investing in equity mutual funds via the SIP route is what comes to rescue in such cases since SIP frees you from market timing.

It also leverages rupee cost averaging to buy you more units when the markets are down.

Compare Performance With Other Funds in the Same Category
You may feel the mutual fund you have invested in is not performing very well. This may or may not be a time when the markets are doing well.

A good strategy at this point is to check your mutual fund’s performance with mutual funds in a similar category.

Also, mutual funds are long-term investment options. If you observe your mutual fund’s performance is only slightly poor when compared to the best-rated funds, switching might not be necessary.

Over a short period, various mutual funds perform in different ways. In the long run, the best mutual funds belonging to the same category usually give similar returns.

Compare Performance With Other Funds From Different Categories
Certain mutual fund categories are more volatile. This means, while they might offer great returns, they can also offer higher risk.

If you feel you are not up for the risk, you should look at the performance of mutual funds from other categories.

For example, small-cap mutual funds give very high returns. But they also have a higher risk. Relative to small-cap equity mutual funds, large-cap equity mutual funds have been less risky.

Also, you might want greater returns and be willing to take the risk. In that case, too, you should explore the best funds in the other category for investment.

Research the Sector
Another reason why your mutual funds are falling could be because your investments are sector focused. This point is relevant to you only if you have invested in a sector fund.

Sector funds invest only in a specific sector or industry.
Sector funds are considered the riskiest for a reason – they are even harder to predict when compared to other equity mutual funds.

So if you have invested in a sector fund and are losing money, pay attention to the health of that industry and its prospects.

If you think the industry has a good future, continue to remain invested. If on the other hand, you think the industry isn’t doing well, you should plan to redeem your money.

Diversify
This is perhaps the only way to counter your mutual fund loss at the moment. If your portfolio is exposed only to equity, then add some liquid/debt funds to the mix.

They will not only balance out your losses due to equity but will also allow you to raise money for short term goals. Also, diversify across asset classes.

Gold is considered as an excellent hedge against market volatility as gold prices usually go up when the markets are done. You can look at exposing about 5% of your portfolio to gold.

Can you lose money in mutual funds? The answer is YES. Should you have a knee-jerk reaction at seeing a red portfolio and make big decisions? Probably not. While the situation is uncomfortable, this too shall pass. Markets have bounced back before and this time also.

From temporary events like elections and geo-political tensions to recessions to pandemics, the economy has seen it all and thrived nevertheless. Investing is a long-term game and should be treated like one.

Stay calm, invest with a vision, keep yourself updated and you are good to go!

September 24, 2020

Sensex jumps 13000 – here are 5 mistakes to avoid

Cheering the Government’s move to unlock the economy, the stock markets rallying strongly, taking the Sensex up-to 39000. As an investor, here are five mistakes you should guard your portfolio against.

Don’t succumb to FOMO (Fear Of Missing Out)

You may have exited your equity investments and sat on the sidelines when things started heading down in March.

Now, with the stock markets have rallied 50% from the bottom, you could feel a strong urge to throw caution to the wind and push all your money back into equities all at once. However, this would be a mistake.

It’s highly unlikely that markets will continue its one-directional surge for very long. Once the euphoria settles, real data such as earnings growth and GDP numbers will come into focus and drive stock prices.

Going all in right now could mean that you’ll be staring at a heavy loss when the current rally retraces. Instead, it would be a lot wiser to stagger your way back in using weekly STP’s (Systematic Transfer Plans) over the next 3-4 months.

Beat the Action Bias!

If you were among those who saw their investments sink deep into the red when markets capitulated in March, you may be itching to take some sort of action with your portfolio, now that the notional loss is lower.

There’s absolutely no need to jump the gun and make rash decisions to exit your investments at this time. Remember, you got into equities for the long run – so remain invested through the ups and downs, and let the economic recovery play out properly over the next year or two.

Moving in and out of your investments will surely work to your detriment in the long run.

Don’t stop and start your SIP’s

Remember, we’re not out of the woods as yet. What we are seeing right now is nothing more than a euphoric, liquidity fuelled spurt in stock prices because the lockdown was lifted.

Though the worst may very well be behind us for now, stock-markets wise, a long and winding road towards economic rehabilitation lies ahead. As the world adjusts to the new normal, we’ll see plenty of volatility in the markets.

It’ll certainly be a few quarters before consumption returns to pre-COVID levels. In the interim, we may witness more measures to curtail the spread of the virus, which may hurt market sentiments.

Some businesses will flounder, while others will adapt and grow. In such a volatile scenario, the best thing you can do is to allow your SIP’s to continue dispassionately – a month in, month out.

Stopping and starting your SIP’s would be a big mistake. Just sit tight and let Rupee Cost Averaging work its magic.

Don’t time the market

With the number of variables and incoming data prints involved, it would be impossible to predict the short and medium-term direction of the markets during this time.

You may have one bullish month followed by a severely bearish month, followed by another surge. Towards the end of May, banking stocks rallied 10% in two days for no apparent reason! In times of such extreme volatility, any attempt at trading would most likely land you in a big soup.

Whatever you do, do not try to time the market; instead, follow a disciplined approach to investing, staggering investments into the markets using a well-planned approach wherever necessary.

Don’t invest unadvised

In choppy waters, the support of an astute Advisor can prove invaluable. In such times, even the most seasoned investors can fall prey to a host of behavioral biases that will work to their long-term detriment.

Your Financial Advisor can be the much-needed voice of reason that will help you make better investment decisions. Choosing to invest unadvised to pinch a few pennies would be a highly regrettable decision right now.

Don’t fly solo – instead, hand over the controls to a conflict-free, competent Financial Advisor who is acting in your long-term interest!

September 22, 2020

5 Financial Lessons from COVID 19

As the nation grapples with the devastating impact of COVID 19 and financial markets gyrate to the tune of incoming news flows, a number of valuable financial lessons come to the fore. Here are five important ones.

Adequate Health Insurance is a must

Many of us rely on our company-provided Mediclaim policies to fund our healthcare emergencies. What we fail to account for, though, is the fact that an unexpected job loss could leave our families without health insurance protection almost overnight.

Also, worth considering is the fact that COVID 19 treatment costs have run into several lakhs for many affected patients.

The crisis has certainly taught us the importance of having an optimal quantum of high-quality health insurance coverage in place, notwithstanding your company provided Mediclaim.

Timing the market is futile

When the NIFTY sank to sub-8000 levels in March and sentiment was at its lowest point, doomsday predictions were a dime a dozen. Investors made a collective beeline for the redemption button and exited equities.

However, markets have since staged a smart recovery, and are showing definitive signs of strength. The takeaway here is the well-worn fact that market timing is impossible, and so should therefore not be attempted.

The only way to create long term wealth from financial markets is to follow a contrarian approach by accumulating equities when fear is at its highest point and to sit through the rough rides thereafter.

An Emergency Fund is vital

If there’s one Financial lesson that the COVID-19 crisis has taught us, it’s the critical importance of building a savings pool that can be used to ride out a prolonged contingency.

An emergency fund is the most basic pillar of sound financial health. Make sure you’re putting away money consistently into a financial instrument that is low risk in nature and gives you the comfort of easy and immediate access to capital.

Follow the thumb rule of having 6 to 12 months of fixed monthly expenses stashed away at all times – you never know when you might need it, as emergencies don’t come announced.

Discipline makes a world of difference

The most effective antidote to the host of behavioral fallacies that plague our day to day investment decisions is to follow a disciplined approach.

In fact, this argument carries even more weight during volatile times such as these. Investing via SIP’s (Systematic Investment Plans) without giving a second thought to market levels or the unending stream of good and bad news flows that inundate our minds on a daily basis, can prove extremely effective.

In the long run, such automatic averaging would go a long way in ensuring fantastic portfolio returns. Stay disciplined.

Unadvised Investing can be injurious to your portfolio!

Needless to say, unadvised investors who went down the direct plan route in a hapless bid to save on investment costs have had a harrowing time of late.

Without the valuable support of a “coach” in the form of a qualified Financial Advisor, many of them have taken regrettable investment decisions in the past couple of months that will have long-term ramifications on their future wealth creation.

For best results, seek the support of an experienced and proven Financial Advisor who will be acting in your interest at all times. COVID or no COVID, flying solo can prove dangerous to your Financial Health!

September 22, 2020

Why Should We Invest in US Stock Market?

The US stock market is home to some of the largest and robust companies with sturdy underlying fundamentals, who are poised to prosper despite the uncertain future.

Taking your current portfolio into account, an addition of US equities will add stability without sacrificing returns. Investing in global equities as an Indian gives you the opportunity to participate in the growth of global economies. Here are a few reasons why one should invest in US stocks:

Why Should We Invest in the US Stock Market?

Global Exposure – A majority of listed companies in the US are foreign companies that have penetrated the US market to take advantage of a large number of investors and to be where the money is. While being invested in US stocks, actual exposure to the US economy is relatively low. Purchasing stocks from the US market will have you not only be invested in the American market but also in international markets giving you access to the whole world.
Largest and Most Liquid Market – Market Capitalization refers to the total value of outstanding shares of a listed company that can be traded. The US is the topmost country in the world in terms of market capitalization as can be clearly seen in the below-given graph. The market capitalization of the US is nearly five times that of China and fifteen times that of India. The US market is also the most liquid market in the world with more than double trades in the stock exchange as compared with China.
Currency Exposure – When one invests in global stocks they are exposed heavily to currency exchange rate fluctuations. One must take precautions while investing in equities with volatile and unstable currency.In the last decade, the Indian Rupee has depreciated approximately 37% against the US dollar.
By taking this into consideration, we can see how an investor who has invested in US stocks would have seen their returns boosted by the depreciating rupee over the years. India’s economy in comparison to the US is more likely to remain a higher inflated economy, keeping the trend unchanged. Diversification and long term positioning will keep investors in the green and help them benefit from rupee depreciation.
FAANG – Simply put, the acronym FAANG represents five stocks which are Facebook, Amazon, Apple, Netflix, and Google. Traded on the NASDAQ, investors turn to technology companies when they are looking to invest in growth stocks and a large amount of media attention and investors’ portfolios are concentrated around FAANG.
The members of FAANG are so massive and profitable that they generate more than a significant amount of the Gross Domestic Product (GDP) in the US. They currently have a market capitalization of around US$ 3.1 trillion and they make up over 10% of the total value of the S&P 500.
Performance – Since 1990, the US markets have greatly outperformed the Indian markets. The Compounded Annual Growth Rate (CAGR) of the BSE 500 is 7.86% and the S&P 500 is 10.06%.

There is a multitude of opportunities in the US market and analysis shows that the time has come to consider this market to diversify your assets outside the country as well. The US is an economic superpower and its innovative nature offers a competitive edge to its investors. Several factors make the US a highly lucrative market.

In the long run, as an investor investing in US stocks helps with diversification in terms of geography as well as the ability to invest in large companies, the scale and size of which is unavailable locally.

September 22, 2020

Five Bad Habits That Are Really Good while Investing

Not on Time – This is one of the most common bad habits. But this bad habit can do wonders to your equity portfolio. One thing that even Warren Buffett doesn’t do is to try to time the stock market. A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process.

So, you should never try to time the market. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles. Catching the tops and bottoms is a myth.

No News – Staying updated with the latest NEWS is a very good habit but this could help you lose money in the stock market. Breaking news tends you take wrong financial decisions.

There is a lot of information/news flowing around in newspapers, Social Media, TV, Internet. This information/news is so well decorated for you to take instant action. News tends you to forget fundamentals and emphasis recent events.

Staying away from such breaking news can help you stick to the fundamentals and grow money with the stock market.

Lazy Action – When it comes to investing, people often say that the more active you are, the wealthier you can become. However, it acts in reverse when it comes to investment in the Stock Market!

So, if you are too active with your portfolio, you are likely to get fewer returns! Shockingly, laziness will help you to get more returns! Yes, you read that right! Notably, investors should choose this for long term investment.

And what is more, market variations will not hurt your investment gains. Invest in good Stock/Fund and forget is the best strategy.

Being Unfaithful is really a bad habit but this bad habit can lead you to make more money while investing.

People usually hold a Stock/Fund/Lic because that is very old or is gifted by their Parents or Grand Parents.

Investors lose money and opportunity when are emotionally attached to some stock/financial product that is inherited and doesn’t sell them even it is not making money.

A good return paying Stock/Product/Strategy will not always give a return. Being unfaithful with your investment & exiting will open new opportunities.

Do Your Own – Following your friends/family/acquaintances is a good habit that can often lead to wrong financial decisions.

The typical buyer’s decision is usually heavily influenced by the actions of friends/family/acquaintances.

Thus, if everybody around is investing in a particular stock/fund/asset-class/product the tendency for potential investors is to do the same.

But this strategy is bound to backfire in the long run. Stop following the herd and use your brains to do your own.

Like it or not, bad habits are bad for you — mentally, physically, emotionally, and even financially.

While some bad habits listed above are extremely good for your financial portfolio and you need not get rid of them.

September 22, 2020

7 steps to make Rs 1 crore in the quickest time

How does one become a Crorepati? We have all thought about this one question a lot. Is it really possible to have that number? The answer lies in the equity market, to be more specific in systematic investment plans (SIPs) of equity mutual funds.

7 steps to make Rs 1 crore in the quickest time

Make money, SIP by sip – A SIP is a financial planning tool offered by mutual funds that allow you to invest small amounts at regular intervals over a long period. It also allows one to use the power of compounding to generate big returns in a portfolio.
In the equity market, the general approach of investing is to time the market whereby one tries to buy a stock or an index at a certain level and book profit when it has run up significantly. This approach often leads to common mistakes all investors, who tend to buy high (caused by the exuberance of a bull market) and sell low (due to the hopelessness caused by a bear market).
Start early – Starting your SIP early is the first condition of becoming a crorepati. One needs to start early. This will help the investor use the power of compounding. Especially over a long period, the difference between starting to invest early versus starting late can make a significant difference to your wealth.
What’s the next step? Investors should first chalk out their long-term financial goals to identify how much mutual fund investment one needs to make every month.
Talk to the right guy The next step is to decide on the right fund house and fund. They will be looking after your money every single day till you redeem and, therefore, they are like the coach on who you want to entrust your life’s savings.
Mix it up – SIPs are not just about pouring all the money into the equity market. The mark of a great portfolio is the distribution of risk and diversification across asset classes. One important element in mutual fund investing is the split in asset allocation between equity and debt.
Become the gardener – SIP investing is not about putting in some money and forgetting it, the way Warren Buffett will have you do it. It is more like being a gardener, who looks after his plants almost every day just to ensure weeds are not cropping up. An investor must, therefore, monitor the performance of a SIP.
Taking home the crore – If you have reached this point, you did well. But just investing is not enough, you have to take home all that moolah too. There’s a systematic way to do that, too. Systematic withdrawal plans (SWP) can help you redeem your investment when you hit the retirement buzzer.

Whatever be the case, the investment objective must remain sacrosanct and the investment plan must be made to accomplish the goal within the given time horizon and within a prudent risk framework.

Category: Financial Planning

9 things to know about Sovereign Gold Bond

7 Things to do when your Mutual Funds are in Red

Sensex jumps 13000 – here are 5 mistakes to avoid

5 Financial Lessons from COVID 19

Why Should We Invest in US Stock Market?

Five Bad Habits That Are Really Good while Investing

7 steps to make Rs 1 crore in the quickest time

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