Financial Planning – Page 9

April 12, 2021

7 Advantages of SIP

Systematic Investment Plan (SIP)

A systematic Investment Plan or SIP is a method of investing money in mutual funds. The other way to invest in a lump sum or one-time payment.

In SIP, you invest a fixed amount of money in a mutual fund of your choice every month.

The setup is such that the money is automatically debited from your bank account.

To know what amount of monthly SIP you need to invest to achieve a certain money goal, use our SIP calculator.

1. You Can Stop the SIP Anytime

There is no fine if you decide to stop a SIP plan. If you want to stop it, you simply have to opt-out of the SIP plan.

This has a very big advantage over recurring deposits (RD) which usually put a fine on you if you want to stop it.

After stopping your regular SIP investment, you can choose to get back the amount or let it continue to be invested in the mutual fund.

2. You Can Skip SIP Payment

If for some reason you don’t have enough balance in your account for the SIP investment of a certain month, you can continue with the SIP next month without any problems.

No fine or charges will be levied against you. In the case of RD, there will most likely be a fine for missing a payment.

3. You Can Invest Very Small Amounts

With SIP plans, you can start investing in mutual funds with an amount as little as ₹500 a month. Here are the best mutual funds to start a SIP investment with ₹500.

Even if your savings are not very large, you can still take advantage of the growth being experienced by India by investing in mutual funds!

4. You Benefit from the Effect of Compounding

When you invest using a SIP plan, your monthly SIP investment gives returns. Those returns are added to your actual investment amount and invested again!

So over time, your continuous monthly SIP and the returns earned by them are subjected to a compounding effect that ensures exponential growth.

5. You Can Start a New SIP If You Have More Money

If you start earning more or if you can save more, you can always start a new SIP plan in the same mutual fund or a different mutual fund.

That way, the extra money will also be invested for the future!

6. You Do Not Need to Worry About Timing the Market

You must have heard that you shouldn’t invest in an inflated market. When you invest using a SIP plan, you do not need to worry about timing your investment at all.

At times when the markets are high, your monthly SIP buys you a fewer number of units of a mutual fund. When the markets are low, the same monthly SIP amount buys you more units.

Therefore, in the long term, you do not pay very high prices for any unit of a mutual fund. This is called the rupee cost averaging.

7. You Become More Disciplined in Your Savings

It is a common complaint of many people that they aren’t able to save money. The truth is, the more you earn, the more you spend.

This is why you should save first and then spend. If you fix your date of SIP investment right after the date you receive your income, you invest before spending!

April 7, 2021

5 Things To Do At The Start Of The Financial Year

While it is pretty natural for all of us to feel a little less stressed at the start of the year, one exercise that you can in April to ensure the rest of your year is also stress-free is to review your finances.

This review will help you assess how you have done with your finances in the last year, where you stand today, and steps you need to take to set yourself up for success financially in the short and long term.

1. Review Your Goals

The start of the financial year is a good time to review your progress towards your goals.

The target amount of your goals might have moved up more than you had assumed when calculating the amount, you will need.

For instance, if you were planning to buy a car, the prices might have seen an above-average increase due to high input costs.

In such a scenario, you will need to recalculate the amount you will need to invest every month to have the amount you need when the time comes.

Additionally, if there is a big change in your life stage in the last year, you might have to rework the priority or add new goals.

2. Review Your Portfolio

While investing for the long-term is the key to wealth creation, that doesn’t mean you should invest and forget.

A periodic review of your portfolio is essential, and the start of the financial year is the perfect time to do it.

A review will help you understand what funds have outperformed, which have performed as per expectation and which have been laggards.

And while removing laggards is tempting, you need to be careful how you approach making that decision.

Ideally, you should only consider those funds which have been underperforming for quite some time (say at least 1.5 years).

What is most important is that you define underperformance clearly.

A fund giving negative returns might not be underperforming if the entire category has

fallen.

So, you need to compare the fund performance vs. the category average.

For instance, if the fund has fallen, but that fall is less than the category average, then you might want to stick to it because of its superior downside protection capabilities.

Reviewing your portfolio is also useful when your goals change. For instance, you started investing in an Equity Fund when you were 10 to 15 years away from your retirement goal.

But now, you have almost reached your target amount and are only two years away from your retirement.

In such a scenario, you need to allocate a higher amount of this accumulated corpus to fixed income products.

3. Increase Your Monthly Investment Amount

Ideally, you should increase your SIP investment by 10% every year with a rise in your income. This will help you reach your financial goals faster.

You can also look at other investment avenues such as the National Pension System (NPS) that offers you the additional Rs. 50,000 deduction over and above the Rs. 1.5 lakh deduction available under Section 80C.

4. Review Life Insurance Needs

Following significant life events like marriage, becoming a parent, buying a house, etc., your responsibilities increase significantly.

You need to make sure that your life cover is sufficient to cover all these additional responsibilities.

So, go back to the calculations you would have used to figure out the right cover for yourself, add the amount you will need to cover the additional responsibilities, and whatever extra cover you need, get that.

Remember, your cover should be enough to provide a monthly income to your dependents, settle all loans, and keep enough for future one-time major expenses like the education of your children.

5. Review Health Insurance Policy

Like life insurance, major life events like marriage and becoming a parent also call for the need to review your health insurance cover.

If you bought a policy before you get married, you would have, in probability, bought an individual cover and for an amount that will be sufficient for you.

Now with additional members in the family, you will need not only a more significant cover but also to make sure they are covered.

The most convenient way to achieve this is by converting your health policy into a family floater and increasing the cover.

This ensures continuity of the policy, and you don’t miss out on any benefits.

March 20, 2021

Sip Top Up – Shortcut to your goal

A Systematic Investment Plan (SIP), more popularly known as SIP, is a facility offered by mutual funds to the investors to invest in a disciplined manner.

SIP facility allows an investor to invest a fixed amount of money at pre-defined intervals in the selected mutual fund scheme.

The fixed amount of money can be as low as Rs. 500, while the pre-defined SIP intervals can be on a weekly/monthly/quarterly/semi-annually or annual basis.

By taking the SIP route to investments, the investor invests in a time-bound manner without worrying about the market dynamics and stands to benefit in the long-term due to average costing and power of compounding.

Top-Up SIP

Top-up SIP is a facility that lets you increase your SIP by a fixed amount or percentage (say 10%) every year or at pre-defined intervals in line with an increase in your income/savings.

This Top -Up in your SIP allows your investments to be in line with the increase in the cost of living or inflation and helps you plan for your financial goals right.

It can also help you reach your financial goals earlier or create a larger corpus for your goal.

Mr. A
Normal SIP
5000
Investor A started investing
5,000/month using Normal SIP for 25 years
with 12% Rate of Interest Total Investment: 15,00,000
95,00,000
Final Corpus after 25 Years

Mr. B
SIP with 10% Top-Up
5000
Investor B started investing
5,000/month using Normal SIP for 25 years
with 12% Rate of Interest Total Investment: 59,00,000
2.07 Crores
Final Corpus after 25 Years

Power of Compounding

When you invest regularly through SIP and invest for the long term, the benefits are magnified by the compounding effect.

The compounding effect ensures that you earn returns not only on your principal amount (actual investment) but also on the gains on the principal amount i.e., your money grows over time as the money you invest earns returns.

And the returns also earn returns.

March 18, 2021

Earn Up to 7.25% on FD

Deposit (or FD) is a low-risk financial instrument that is offered by banks, post offices, or Non-Banking Financial Companies (NBFCS).

You can easily invest in a Fixed Deposit and grow your savings at a fixed rate of interest, which is higher than interest rates offered by savings accounts.

The convenience of investing along with the safety of your deposit can help you plan your short-term and long-term goals easily.

At Bajaj Finance Limited, you get attractive FD interest rates of up to 7.25%, so you can save for your goals easily.

Investing in a Bajaj Finance Fixed Deposit is easy, as you can invest from the comfort of your home through an end-to-end paperless online investment process.

In today’s times of increasing market volatilities, investing in a Bajaj Finance Fixed Deposit can help you get assured returns and steady growth of capital.

So you can build your savings with no effect of market fluctuations.

DID You Know? Bajaj Finance is now offering interest rates of up to 7.00% on fixed deposit and 0.25% more for senior citizens.

What’s more, online investors get 0.10% extra (not applicable for senior citizens) – Invest Online

Benefits of Bajaj Finance Fixed Deposit

Interest Rate Ranging from 7% to 7.25%

Minimum Tenor 1 Year

Maximum Tenor 5 Years

Deposit Amount Minimum deposit of Rs. 25,000

Application Process Easy online paperless process

March 15, 2021

The Power of SIP

SIP or Systematic Investment Plan is a plan through which a person can invest a small amount in a mutual fund at regular intervals (monthly/quarterly).

Hardly pinches your pocket

Most of us spend some money every day buying and eating a snack worth around Rs 15 or 20. Just saving that amount enables one to start investing in mutual funds through SIP.

That’s how small an amount is required to get started investing through SIP

While we all love and deserve to spend our hard-earned money, keeping a small amount aside each month can go a long way.

How often do we spend Rs 500 just over a whim? We may decide to order through one of the many food delivery applications or may meet up with a couple of friends at a coffee shop. Before we realize it, we end up spending around Rs 500.

Thanks to rising income and a higher standard of living, it doesn’t pinch as much as it used to.

After all, Rs 500 is what a couple of movie tickets or a couple of pizzas cost.

Most mutual funds allow investors to start investing with Rs 500 per month.

For an individual who has never invested earlier, starting with Rs 500 per month is also a promising beginning.

Therefore, this becomes a great way for new investors to begin as regularly investing Rs 500 per month over a longer period wouldn’t impact the investor’s wallet even if there is irregular income due to job loss or sabbaticals.

Magic of compounding

Investors would agree that Compound interest is one of the most powerful forces in the world! This is because of the impact it has on one’s investments. Investing over a longer period will create substantial wealth.

Investing just Rs 500 per month can result in the following scenarios

Over 10 years, a CAGR of 12% will offer Rs 1.2 lakhs
Over 10 years, a CAGR of 15% will offer Rs 1.4 lakhs
Over 10 years, a CAGR of 18% will offer Rs 1.7 lakhs
Over 20 years, a CAGR of 12% will offer Rs 5 lakhs
Over 20 years, a CAGR of 15% will offer Rs 7.6 lakhs
Over 20 years, a CAGR of 18% will offer Rs 11.7 lakhs
Over 30 years, a CAGR of 12% will offer Rs 17.6 lakhs
Over 30 years, a CAGR of 15% will offer Rs 35 lakhs
Over 30 years, a CAGR of 18% will offer Rs 71.6 lakhs

Let us look at the illustrations which offer a CAGR of 12% across 10, 20, and 30 years.

Over 10 years, the investment of Rs 500 per month turns out to be worth Rs 1.2 lakh.

Over 20 years, it balloons up to Rs 5 lakhs, and over 30 years it swells up to Rs 17.6 lakhs!

We don’t lose our sleep

Over a shorter period markets tend to be volatile. Even after investing consecutively for 36 months, one may see that one’s portfolio is in red. If the invested amount is small, then a new investor can deal with this situation and not feel stressed about it.

If a new investor starts a SIP with a larger amount in a small-cap fund during a choppy market, the variance in a portfolio can cause the investor to chicken out and withdraw his holdings much before the magic of rupee cost averaging plays out

As the performance of a mutual fund in which an investor has started a small SIP improves, she acquires confidence to invest higher amounts.

Suitable for risk-averse investors

Some individuals only prefer saving in fixed income or debt instruments. Due to certain reasons, such investors prefer the security of lower returns rather than the opportunity presented by equity funds to beat inflation.

If they haven’t tasted the growth that an equity-based instrument brings in, introducing them to the same through small SIPs is a great idea.

Some investors may not stay through the course even though the monthly invested amount is tiny. Whereas some may realize the benefits of investing in equity-based instruments as well and may seek to increase the SIP amount.

Continue to invest in case of unforeseen circumstances

As the size of an investor’s portfolio increases, her confidence in the wealth-creating ability of mutual funds increases.

After experiencing market volatility and continuing investments regularly, the investor begins to appreciate the process of creating wealth by investing through small SIP when the mutual fund portfolio starts growing.

This offers a huge boost of confidence to the investor which may result in the investor bumping up her SIPs.

Acquire confidence to invest more over some time as our portfolio grows

We live in an uncertain world. Incomes have improved but job security, especially in private firms, is a big question mark. There may also be health-related situations that may cause an individual to stop working for a while.

We are also living in a time when individuals wish to make the most out of their lives. This includes taking a sabbatical to travel or quitting a well-paying job to start up.

During such scenarios, one may not receive a regular flow of income. Or the size of income could reduce. Small SIPs can still be kept going as they may not cause a huge dent in an investor’s pocket during such uncertain times.

Easier to develop the habit of financial discipline

Financial discipline is rarely something we are born with. We have to work on it. Let us take the example of goal-based investing. A newbie investor may start a small SIP to invest a certain amount over 5 years to achieve a goal.

However, after 18 months, this individual may be tempted to buy a new laptop and would be falling short of some amount.

If this individual decides to redeem the corpus which has been created so far, he may not only lose the opportunity of creating more wealth but would also fall back on his efforts to achieve his goal.

Therefore it is critical to adhere to financial discipline when it comes to investing. Starting small makes it easier to get used to this. It is worth creating a habit of putting aside a small amount.

Over some time, this would make it easier to deal with following a discipline of investing larger amounts.

Claim tax benefits

Investors who are starting their journey in the world of investment can look at ELSS to not only help achieve financial goals but also save tax. ELSS stands for Equity Linked Savings Schemes.

ELSS is riskier than the fixed income alternatives available for tax-saving under section 80C but has the shortest lock-in period among all these options. It also offers the potential for growth via equity.

Conclusion

Rome wasn’t built in a day. And neither is a huge corpus that can offer financial freedom. One can begin investing modestly and then slowly keep increasing SIPs without being influenced by noise.

Once an investor signs up to ride several market cycles then there is no looking back.

This is because the investor begins to understand the importance of continuously investing during good times as well as bad. Small SIPs are bound to do wonders for our financial health.

February 25, 2021

Secure your Child’s Future – Invest in Mutual Fund

Raising one’s child to become the best version of himself/herself is the biggest responsibility of the parents. From nutrition, healthcare to education – you want to provide the best in everything to your child.

Apart from that you also have to make sure that their future is secured.

And the only way to achieve this mammoth task without hurting your own financial future is by investing through mutual funds.

1. Goals for your Child’s Future

The first step towards investing is to know what you are investing for, i.e. what is your investment goal. Now, as parents, you need to have financial goals set for your child.

For example, you have to save for your child’s school admissions, his or her college/higher education, maybe for a degree from a foreign university, his/her marriage, etc. Try to figure out what kind of money you would need to achieve each of the goals.

Say, for your child’s school admission you need to save Rs 2 lakh; or Rs 80 lakh for your child’s higher education, etc. This way you can turn your dreams for your child into financial goals.

2. Choose the right fund and start saving towards the goal

Since you know your goals, you should start saving towards them. Now, it is extremely important to choose the right mutual fund as per your goals.

For example, let’s suppose you would need Rs 2 lakh for your child’s school admission in two years. This is a short term goal, for which the main focus is capital preservation. Ideally, you should invest in Short Duration Debt Funds or FDs to achieve the goal on time.

Meanwhile, you might also want to save for his/her higher education. This is a goal that is at least 17 or 18 years away. And also, due to inflation, the amount that you would need would be much higher than it is today.

For example, an MBA course at a top-rated university costs around Rs 20 lakh today. And at the 10% annual inflation rate the same course would cost Rs 80 lakh in 15 years.

So to achieve this goal, you need to invest in equity mutual funds as they are your best bet to get inflation-beating returns consistently over the long run.

3. Start investing through SIPs to save towards your goal

The easiest way to get into the habit of disciplined investing in mutual funds is by starting a SIP.

Through a SIP, you put a fixed amount of money every month towards your mutual fund investment, which over the years helps you achieve the target amount in time.

For example, say you want your child to attend a top-rated B-school and for that, you need to save Rs 80 lakh in 15 years. If you choose to invest in a mutual fund through a SIP, then your monthly SIP amount would be Rs 16,000 every month to reach the goal on time (assuming 12% average annual returns)

4. Increase your SIP investments periodically

As every year your income and salary increases, you should also increase your SIP investments every year. This can be a fixed 10% every year or as per the percentage of increment in your salary each year.

Now, this timely boost every month can make a huge difference in the final amount that you will receive. Let’s explain this with a two case scenario.

Say you want to save Rs 80 lakh in 15 years to be prepared to send your kid to B-school. In the first case, you keep investing Rs 16,000 per month all through to reach the goal in time.

Meanwhile, if you keep increasing the investment amount by 10% every year, you can save Rs 80 lakh in 12 years. (In both the cases the return amount assumed is 12% p.a., though there are no guaranteed returns.)

And if you reach the goal early, you will be much well prepared when it’s finally time for your kid to go to B-school.

5. Do not stop/skip your SIP investments

To achieve a financial goal on time, this is the most important thing to follow. That is, never stop or skip your SIP investment. Remember, one wrong step can completely jeopardize your child’s future.

The most important future goals of your children are time-bound, like your child’s school, college education, or higher education.

So if you skip, miss, or stop your investments midway meant for such goals, it would mean you might not have enough funds when it’s time to go for college/university. So be regular with your investments.

However, if you had to stop investing for some reason, make sure to fill that gap later by adding money later.

Conclusion:

Ensuring that your child’s future is well secured is one of your biggest responsibilities. There are several milestones that they need to achieve at different ages. And you need to be financially prepared to help them achieve each of the goals.

So set the goals, determine the timeframe, and start investing in the right mutual funds.

January 4, 2021

Markets at all-time highs: Should you exit & re-enter at lower levels?

The markets are high and they look overvalued. Many are worried about the expensive markets. But the bigger questions that investors must ask, are the following.

1. If it falls, then by how much?

2. What if it does not fall much; i.e., what if it is a time-bound correction and not a price-bound one?

3. ‘When’ will it fall?

Now, let’s apply this logic to the stock market. A lot of investors are in a dilemma: ‘should we book profits for now and enter again when the market falls?’

Let’s say you execute this thought and sell all your investments today with the plan of entering the market again when it falls.

And let’s assume your decision is proved right and the market falls drastically in the next few days or weeks.

If that happens, it is not good news. This is because if you are proven right in this decision, you will do it again in the future.

That is, you will ‘time the market’ again and again. And this is a bad habit. If you time the market 10 times in the next few years and you are wrong just 3-4 times out of 10, you may still lose money overall, forget about making great returns.

Check the records of successful investors. Do they follow this practice? If not, why? If they cannot or do not predict the market, what are the chances of you being right?

We have to be careful about the kind of actions we take, as they will become a habit. If this habit is a bad one, it will be very tough to leave it.

Now, let’s see if we can answer the three questions asked earlier.

1. What if there is only a time-bound correction?

Correction can be price-bound, the way we had in 2008 and March 2020. And it can be time-bound as well. That is, the markets remain in a certain range for a very long time.

Examples:

1) From July 2009 till December 2011, again, the Sensex was range-bound.
After moving in a range, the market started moving up again in both cases. If that happens again in the next few months or years, your plan to enter at low values may never fructify.

2) From December 1993 till February 1999 (for more than five years), the Sensex was range-bound between 3000 and 4000 levels.

2. If it falls, then by how much?

Did you invest a huge amount in March 2020? No? Maybe because you were waiting for the markets to fall more. We, as humans, have this deep desire to buy at the lowest level.

And who tells you where the bottom is? TV experts, your advisor, neighbors, colleagues, or friends?

Investing at the lowest point and exiting at the top is a matter of luck, not research. Therefore, the best strategy is to invest at every level. Even at today’s level in January 2021.

In a nutshell, make sure you are conscious of the habits you develop while investing in the stock market. This is what differentiates a successful and not-so-successful investor.

3. ‘When’ will markets fall?

I know investors who sold their portfolios in July 2020. The market had recovered significantly from its March lows and economic activity had hardly started.

Logically speaking, it was the right call. Many investors and experts were expecting the market to fall again.

We are in December 2020 now and we all know what has happened from July onwards. It is not about being ‘logically right,’ but about developing the right habit.

I also know a few of these investors who entered the market again in September-October 2020.

It was not easy for them to watch the markets grow continuously when they had sold their investments in anticipation of a fall.

December 4, 2020

ELSS Mutual Fund – 3 Mistakes to Avoid

3 ELSS Mutual Fund Related Mistakes to Avoid

Of late, ELSS (Equity Linked Savings Schemes) or “Tax Saving Mutual Funds” have gained tremendous popularity. More and more investors are starting to believe that for saving taxes, ELSS Mutual Funds Sahi Hai!

And why not? As a category, Tax Saving Mutual Funds have grown investor wealth at nearly 18% per annum between 2013 and 2020 – nearly twice as fast as traditional choices such as NSC and PPF, and almost three times faster than traditional Life Insurance.

Their shorter lock-in period of three years has added to their allure.

All the obvious advantages of ELSS Funds as an 80(C) instrument notwithstanding, they possess a few all too common pitfalls too. Here are three of them that you must avoid at all costs.

1.Not understanding the risks

Unfortunately, there are no free lunches in the investment world. Increased return potential will invariably be accompanied by an increased risk of capital erosion. Being equity-linked, ELSS funds are high risk in nature – during the crash of 2008 & Covid’19 crisis many ELSS funds fell to nearly half their value!

As an investor, you would do well to understand the risks associated with ELSS funds before taking a final decision.

If you’re very risk-averse, you may want to consider splitting your tax-saving amount between ELSS funds and other lower-risk instruments such as PPF or Tax Saving FD’s – lower returns notwithstanding.

Respecting your unique investment preferences and risk tolerance levels and critical for long-term investing success.

2.The Investing in one shot

A common ELSS Mutual Fund related mistake – is to hold back until the last moment and make a lump sum investment into a tax saving mutual fund and the very end of the fiscal year.

While this approach would benefit you if you luckily end up catching a market bottom; it could work against you if you end up investing at a market peak (neither of which can be predicted).

A much smarter approach would be to start a Mutual Fund SIP (Systematic Investment Plan) in an ELSS Mutual Fund at the start of the financial year, after computing your projected deficit for the year.

For instance – start a monthly SIP of Rs. 12,500 in 12 months will make 1,50,000. In doing so, you’ll be benefiting from a mechanism called “Rupee Cost Averaging” which greatly mitigates the risks associated with the stock markets.

In the long run, your returns will be a whole lot smoother and less volatile, and you’ll worry about your investments much less.

3.The Fixating on the 3-year lock-in

By fixating on the three-year lock-in, many investors harbor the mistaken belief that three years is a sufficient time horizon to invest in ELSS Mutual Funds. In reality, a time horizon of five to seven years is a lot more appropriate, since a Tax Saving Mutual Funds is essentially a 100% equity-oriented investment.

In situations where lump sum investments are made when market valuations are already stretched (such as today’s scenario), it is quite likely that ELSS returns could be flat to negative over a three-year period, with a couple of rough-rides thrown in during the course too.

In such situations, investors need to be willing to extend their time horizons by a further three to four years (beyond the mandated three-year lock-in) to really reap rewards. While you can derive a degree of comfort that the mandated lock-in will finish within 36 months, you need to mentally commit yourself to a longer investment horizon if you’re opting for a Tax Saving Mutual Fund.

December 1, 2020

What to start early: Investment or Insurance?

Several reasons why you should start investing and also get insurance at a young age. But, at the time when we start our career, with a little income and too many expenses, the dilemma that we often face is should we invest or insure first?

Through this blog, I will try to help you get over this dilemma, i.e. whether to invest or insure first.

Before I get it into explaining whether to invest or insure first, it is important to understand why it is important to start investing and also buy insurance (health and life) early in life.

2 reasons why you should start investing early

Starting your investments early improves your spending habits

At the time when we start earning, our income is quite low. And if we want to save from that little amount of salary that we get, then we have to put restrictions on our spending by creating a budget. Over the years this simple practice becomes a habit, eventually improving our spending habits.

To adopt the simple habit of saving/investing, put away the part of the salary at the start of the month. And, then make a monthly budget with the rest of the money you have in hand.

Say you earn Rs 30,000 monthly and out of that you want to save Rs 10,000 every month. So as soon as you get your salary, put Rs 10,000 away, and then create a monthly budget with the rest Rs 20,000.

You enjoy the benefit of compounding
For starting your investments early, you stay invested for longer, which automatically increases the benefit of compounding. Let’s understand this with 2 simple examples.

Say you want to save Rs 5 crore for your retirement. Now, with that goal in mind, you start investing in an equity mutual fund from the age of 22. For this, you will have to keep investing Rs 5,500 for the next 38 years, and your total investments would be Rs 25 lakh.

In the second case, the goal remains the same but you start investing in the goal much later, let’s say at 45. For this, you would need to invest Rs 1 lakh every month for the next 15 years and your total investment amount would be Rs 1.8 crore.

This is how compounding works in favor of money over the years.

After looking at the reasons why one should start investing early, let’s understand why it is equally important to get insurance at a young age.

Here as we speak about insurance, we mean both health and life insurance.
Speaking about health insurance, no matter what your age is you should always have health insurance.

Sickness or some health emergencies can come at any time and if you do not have health insurance, medical expenses can burn a huge hole in your pocket. So you should never delay the process of getting health insurance.

However, we often delay the process of buying a term life reason for very simple but foolish reasons. The common notions are since we are young and healthy or at this stage, as the responsibilities are less, we do not need term life insurance. However, contrary to the popular belief, buying term insurance early on is always favorable.

2 reasons why you should buy term life insurance early

The premium amount is low
The biggest advantage of buying term life insurance early on is the premium amount that you pay is much less as compared to what you would pay if you buy it at a later stage in life.

For example, say you want to buy a policy of Rs 1 crore that would give you coverage till 75 years. If you buy it at 25, the premium amount would be Rs 8,000 annually. At 30, it would be Rs 10,000. And at 45, the premium for the same policy would be Rs 30,000.

Your family gets covered early on
The sooner you buy the term insurance, the sooner your family gets covered. Even if you are not married, your parents might be dependent on you or you might have a loan (vehicle loan, student loan),

In case you die early then your family will have to bear that burden. Having term insurance ensures your family will not have to go through financial hardship in case something happens to you

So finally, whether to invest or insure first?
So, this is typically a chicken and egg situation – who came first.
To put more aptly, here it would be which one to do first, buy insurance, or start investing? Now, the best thing to do is to do both things simultaneously.

For example, let’s suppose Rajeev is a 25-years-old, and given his monthly income of Rs 40,000, he can take out Rs 10,000 each month, i.e. Rs 1.2 lakh annually, for savings/investments/insurance. So what should he do?

Here is how you can allot the money towards insurance and investments

Health insurance: It is a good practice to have at least 6 times your monthly salary as your health insurance coverage. By that logic, since Rajeev’s monthly income is Rs 40,000, his health coverage should be between Rs 2.4 to Rs 2.5 lakh. At the age of 25, the yearly premium amount for Rs 2.5 lakh health insurance would be about Rs 5,000.

Term life insurance: Since Rajeev doesn’t have a lot of liabilities, a term cover of Rs. 1 crore would be enough. Say the term life insurance cover that you need at this stage is Rs 50 lakh. The premium for a Rs 1 crore term policy would be around Rs 8,000 annually.

Investments: The rest of the Rs 1.1 lakh you can invest in Mutual Funds. Since Rajeev is young, he can take risks, and therefore you should invest in equity mutual funds. He can consider large-cap mutual funds or multi-cap funds and start a monthly SIP in these funds.

Now, as and when the income increases, he should also increase your investment amount. Rajeev should also review his health and term cover at regular intervals to ensure the cover is sufficient.

November 17, 2020

CFD Better Then Bank FD (Fixed Deposit)

FDs are normally a fixed deposit and a saving instrument, which gives a higher rate of interest than a regular savings account.

It is a term deposit in which we invest in a lump sum amount and we get interest on it till maturity.

FD’s are normally offered by the bank. But NBFC’s (Non-Banking Financial Companies) also offer the FD’s and it is known as Corporate Fixed Deposits. They are the same as bank FDs.

Corporate Fixed Deposit (CFD) is a term deposit that is held over a fixed period at fixed rates of interest. The maturities of various corporate fixed deposits can range from a few months to a few years.

Their functioning is somewhat similar to Bank FDs but they are offered a higher rate of interest. The risk involved with corporate FDs is significantly higher. If the company hits a recession or goes bankrupt then the returns cannot be provided at the maturity of corporate FDs.

The medium of the deposit is a certificate of deposit. The corporate FDs are not insured, that means, in case of default you will not get Rs 5 lakh as in the case of bank fixed deposits. It gives high returns as compared to Bank FD’s as they involve high risks.

Key benefits of Corporate FD’s :

Higher returns – Enjoy greater returns from Corporate FDs as compared to the bank FDs.

Flexibility – Choose Corporate FDs as per your preference from a variety of tenures such as monthly, quarterly, half-yearly, or yearly.

Liquidity – Enjoy better liquidity with Corporate FDs with a lower lock-in period than Bank FDs

Premature Withdrawals – Opting for premature withdrawal in FD means depositors can withdraw their amount and close the account before the term ends.

Safety – Company deposits are carefully inspected by credit rating agencies. These agencies check whether such FDs are safe and stable.

Tips for choosing a Corporate FD:

Credit Rating: Opt for higher-rated corporate FDs based on its credit rating which indicates the underlying risk of the company.

Company Background: Assess a company’s business viability by referring to its Financial Statements, Management Discussion, and Analysis (MD & A).

Repayment History: Companies’ repayment history helps to determine the company’s credit score, credibility, and stability.

Risk profile: Make sure that the company you pick is financially healthy and helps you rule out any default risk during the fixed deposit period.

Terms of FD: A cumulative scheme could be better than a regular income option as the interest earned gets invested in other avenues. At the end of the day, you’ll have a lump-sum amount in your hands. But not if you’re looking for a regular income from the FD.

Here are the top NBFC’s recommended by our expert.
1. HDFC Ltd (Housing Development Finance Corporation Ltd)
2. PNB Housing (Punjab National Bank Housing Finance)
3. Mahindra Finance (Mahindra & Mahindra Financial Services Ltd)

Category: Financial Planning

7 Advantages of SIP

5 Things To Do At The Start Of The Financial Year

Sip Top Up – Shortcut to your goal

Top-Up SIP

Power of Compounding

Earn Up to 7.25% on FD

Benefits of Bajaj Finance Fixed Deposit

The Power of SIP

Hardly pinches your pocket

Magic of compounding

Investing just Rs 500 per month can result in the following scenarios

We don’t lose our sleep

Suitable for risk-averse investors

Continue to invest in case of unforeseen circumstances

Acquire confidence to invest more over some time as our portfolio grows

Easier to develop the habit of financial discipline

Claim tax benefits

Conclusion

Secure your Child’s Future – Invest in Mutual Fund

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CFD Better Then Bank FD (Fixed Deposit)

Varanasi | Prayagraj | Raipur | Bhadohi | Siliguri

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for the experience

Subscribe for Updates

Useful Links

Quick Links

Important Links

Contact Us

Top-Up SIP

Power of Compounding

Benefits of Bajaj Finance Fixed Deposit

Hardly pinches your pocket

Magic of compounding

Investing just Rs 500 per month can result in the following scenarios

We don’t lose our sleep

Suitable for risk-averse investors

Continue to invest in case of unforeseen circumstances

Acquire confidence to invest more over some time as our portfolio grows

Easier to develop the habit of financial discipline

Claim tax benefits

Conclusion

Varanasi | Prayagraj | Raipur | Bhadohi | Siliguri

Customers buy a product but pay for the experience

Subscribe for Updates

Useful Links

Quick Links

Important Links

Contact Us

Customers buy a product but pay
for the experience