Category: Investment

Financial gifts are often not on our radar when it comes to gifting our loved ones. However, they go a long way in securing the future of those we love, helping them accomplish their life goals and hence make for an ideal gift. Until a decade ago, your options were limited, but today there are multiple choices for you to choose from to show how much you care for your near and dear ones.

Health Insurance
Given the current times, health insurance is an absolute must. It reduces out-of-pocket expenses and keeps a family’s savings intact amid a health contingency. There are other benefits too. A health insurance plan ensures that your loved ones can efficiently address other crucial commitments.

You can give an individual health plan or buy a family floater plan. The latter offers covers to all family members at a cost-effective price point. If you are in a metro where hospitalisation costs are high, it’s recommended to buy a health plan of INR 10 lakh.

Compare different policies and go for the one that best fits the requirement. If your loved one already possesses health insurance, you can gift a top-up plan. The benefits of a top-up plan kick in once the sum insured in the basic plan gets exhausted. Top-up plans are cheaper than regular health plans and widen the cushion net.

Health Insurance Taxation
Health insurance not only prevents out-of-pocket expenses but also lowers tax outgo. The table below highlights tax benefits offered by health plans under Section 80D:

Stocks
Investing in robust stocks for the long term can help generate inflation-beating returns and build a corpus for key goals such as children’s higher education, marriage, etc. While earlier gifting them was a tedious task, today it isn’t. Because of the introduction of electronic delivery instruction slips by the Central Depository Services (India) Limited (CDSL), you can easily present stocks.

Gifting stocks is also a prudent way to introduce your loved ones to invest in capital markets for long-term wealth creation. Many brokerage houses offer this facility, whereby you can easily gift stocks to your family members and friends. You can select the stocks and the quantity you want to give and transfer them with just a few taps.

If the recipient doesn’t have an account with the brokerage house, the same can be opened quickly before accepting the gift. Indian stock markets have several multi-baggers adding which to one’s portfolio can augment riches in the long run. Investing in these stocks can have a multiplier effect on wealth creation.

Stocks Taxation
Stocks are taxed based on their holding period and under the head ‘capital gains’, which are further classified into long-term capital gains (LTCG) and short-term capital gains (STCG). Equity shares sold within 12 months of purchase fall within the purview of STCG that is charged at a flat rate of 15%.

On the other hand, stocks sold after 12 months fall within the purview of LTCG. LTCG up to INR 1 lakh don’t attract any tax but gains beyond that are charged at 10%.

Life Insurance
The lynchpin of a financial plan, life insurance protects the financial interest of your loved ones. They also help accumulate funds for various short and long-term goals. You can gift a term plan that will ensure people close to you are not in a lurch in case of an untoward incident. A term life insurance policy offers a high life cover at an affordable premium.

You can also contemplate gifting an endowment plan or a unit-linked insurance plan (ULIP). Endowment plans offer death and maturity benefits. On the other hand, ULIPs serve the twin purposes of investment and insurance. In ULIPs, a part of the premium provides life cover while the other is invested in capital markets to earn returns.

Life Insurance Taxation
Just like health insurance, investment in life insurance also helps lower tax outgo. Premiums paid towards life insurance plans qualify for tax exemption under Section 80C of the Income Tax Act. Maturity benefits received are fully exempt under Section 10(10D).

Enroll in an Online Course
Knowledge is the shining armor in one’s knight for sustainable wealth building. It helps one make prudent choices and mitigates the threat of falling prey to mis-selling and making impulsive decisions. You can enroll your loved ones in online courses by financial institutions to understand several aspects of finance and investment.

Financial institutions, including brokerage houses and asset management companies, have come up with various online courses on personal finance and stock market investment that help decode the multiple aspects in a simple and lucid manner.

Participating in these courses go a long way in honing financial knowledge that can help your near and dear ones better plan their finances and investments to achieve financial goals.

Mutual Funds
Mutual funds have rapidly made their mark in the Indian financial landscape. They have witnessed increased participation from retail and institutional investors. Offering diversification, mutual funds help invest in different stocks in diverse segments.

Systematic investment plans (SIPs) are a prudent vehicle to invest in mutual funds as they imbibe disciplined savings habits and help stay invested across market cycles. While you can’t transfer mutual fund units from your account to another holder, unlike stocks, you can start a SIP for your minor child.

You can purchase units in your child’s name, and you can continue making payments until your child becomes major. Once your child turns into an adult, fresh KYC needs to be done, and your child can benefit from the investments made by you.

Mutual Fund Taxation
Mutual funds are taxed based on the type of fund and their holding period. Equity funds where the holding period is more than 1 year are subject to LTCG. If sold within a year of investment, the gains are subjected to STCG tax.

LTCG tax of 10% is applicable on gains beyond INR 1 lakh. On the other hand, STCG tax is charged at a flat rate of 15% if the fund is sold within one year of investment.

For debt funds, LTCG is applicable if the fund is held for three years or more. If sold after three years, LTCG tax of 20% is levied. On the other hand, if sold within three years, STCG tax is levied as per the applicable income tax slab.

Source: Forbes

What’s the difference between the rich and the wealthy? Since both have enough money to cover their needs, your answer will likely be “Nothing.” However, ‘rich’ and ‘wealthy’ are far from synonymous in the personal finance world. This article will examine rich vs wealthy in detail, clearing any ambiguities you may have about these terms by providing some useful tips, insights, FAQs, and examples highlighting the difference between the rich and the wealthy.

What Is Considered Rich?
Being rich means having enough money or income to live a relatively comfortable life. According to many experts, the three factors that qualify one to be considered rich are:

Having a Lot of Income
You’re a rich person if you receive a high salary that allows you to live comfortably while being primarily sustained by your paychecks and bank account, which help you navigate your high cost of living and many expenses.

Spending a Lot of Money

Another feature that highlights the rich meaning is the ability to spend a lot of money. If you’re rich, you’ll likely have little qualms about spending freely on many things that others would think twice about.

Showing Off How Much Money You Have
Rich people typically live flashy lifestyles that show off their status to outsiders. Glamorous displays of cars, clothing, shoes and other possessions are telltale signs of a rich person.

However, if you’re a rich person, your money is only good for a finite amount of time. Although you’re in a fairly good financial position, true financial independence eludes you, as many rich people spend more than they earn and end up in debt quickly. Think of lottery winners as examples of the filthy rich meaning—they make a lot of cash that helps them afford flashier lifestyles, splurging on fast cars, clothes, designer perfumes, expensive shoes, and other material objects. However, they often go broke because sustaining their lifestyle is unfeasible in the long run.

What Does It Mean to Be Wealthy
Not all rich people are wealthy, but all wealthy people are rich. The difference between being wealthy vs rich is that wealthy individuals can control and manage their money, spending their time making investments to create a sustainable lifestyle. Consequently, they can enjoy their riches without a time limit due to their sustainability.

Spotting a Wealthy Person
A defining feature of the wealthy is that they rarely look the part. Individuals at the apex of financial freedom are typically not as flashy as the rich. They generally aren’t interested in impressing others with how much money they have or engaging in what is considered rich. Consequently, spotting the wealthy can be challenging, because you may pass them by every day without even realizing it.

How the Wealthy Gain Their Wealth
There are various factors that contribute to becoming wealthy:

Savings
Saving may seem like a very elementary step to wealth building, but it’s arguably the most important. Small sums regularly saved over time can eventually add up to immense wealth, so it’s no surprise that the wealthy are some of the biggest savers around. There are many ways to achieve financial freedom through saving, including opening some great IRA savings accounts.

Investing
The wealthy complement their excellent savings habit by putting their money to work through investing, a key aspect of the wealthy meaning. Consequently, they usually have assets like real estate, shares in the stock market, antiques, gold, and art. Investing allows the wealthy to amass even more money and increase their net worth. Therefore, the straightforward answer to the popularly Googled question “Is investing a great idea?” is a resounding yes.

Frugality
Being frugal is a mindset that makes, grows, and retains wealth. As such, the wealthy are often reluctant to lose their hard-earned money to unnecessary expenses.

It’s critical to note that the wealthy are also financially educated individuals who know all there is to learn about making and keeping money. This knowledge often confirms the difference between rich and wealthy.

Rich vs Wealthy: Differences
Although both being wealthy and rich means having enough money in your bank account to get by, it goes way beyond that. A rich person is usually someone with a huge salary or income stream. However, someone who makes way less may be in better financial health than a rich person if they invest and save aggressively.

Also, rich people will spend freely and use their income to fund lavish lifestyles, while wealthy individuals are more interested in saving and investing a huge chunk of their cash in profitable avenues like the top TaaS stocks to buy.

Another key difference between the wealthy and rich is that the wealthy maintain a middle-class lifestyle since they’re focused on building long-term wealth by generating assets. To simplify things, take a look at other key aspects of the difference between the rich and the wealthy:

• The rich engage in little to no financial planning, whereas the wealthy take notice of affordability and their spending habits, engaging in estate planning, budgeting, and tax strategies.

• Rich people have high expenses compared to income, while the wealthy have low expenses compared to income.

• Another key difference between the wealthy vs rich is that the rich have finite money that will soon run out, but the wealthy have sustainable money that will last.

• The rich usually store their money in cash and material assets, while the wealthy keep theirs in investments and long-term accounts. With a great Robo advisor’s assistance, you can start investing too, so keep this in mind.

• Rich people, mostly rely on a high salary or income, with no long-term investment plan. On the other hand, the wealthy have numerous revenue streams to reduce risk and diversify their income, so they don’t have to worry about pensions or 401K.

• The rich are obsessed with hoarding material items and upgrading their lifestyle frequently. However, buying assets is what is considered wealthy, even though the wealthy may also buy other things occasionally.

It’s preferable to be wealthy than rich. Wealth brings stability and financial security, offering you more time to spend as you please without having to stress about money, so the mental health benefits are enormous as well.

Net Worth
Furthermore, the concept of net worth is crucial in the wealthy vs rich conversation. The question of the possibility of retiring at 60 with $500k is often asked by ordinary individuals interested in net worth, or the value of your assets minus any liabilities you owe. Knowing about net worth is vital in the difference between rich and wealthy, while also offering a reference point to measure progress towards your wealth-building goals. As you continue earning, saving, and investing, your net worth will grow, but you’ll need to focus on saving more and spending less if your net worth is pretty low.

Why Rich People End up Indebted
As mentioned early on, being rich doesn’t necessarily mean having a high net worth or always having money—frequently spending significant amounts of cash on non-essential stuff also fits the rich definition. Rich people also often spend more than their income, getting into debt in no time. Therefore, even though you might be a rich person living in a fancy mansion or driving an expensive car and earning, say, $200,000 annually, if you spend $225,000 yearly in expenses, bankruptcy will come knocking on your door soon.

Is It Better to Be Rich or Wealthy?
Adequate savings, proper investing, frugality, and true financial freedom are what is considered wealthy in 2022. On the other hand, a huge income, excessive spending, extravagance, and possible debt are associated with just being rich. Therefore, it’s better to save, invest, and be frugal with your money to build wealth instead of being just rich.

Source: Review42

From our school days, we have been taught that goal setting is fundamental to our long-term success. After all, it is difficult to get to the desired destination without clearly defining the destination. But once you realize what is important to you, the goals set by you will help you remain determined to achieve them.

Like all other aspects of life, this applies to our finances as well. And this is where the concept of investing based on your financial goals or goal-based investing comes in.

In this blog, we will explain goal-based investing, how you can plan for financial goals, and how it helps in wealth creation.

What Is Goal-Based Investing?

We all have so many things we want to achieve in the future. This can be buying a car, a home, going for a trip, planning for a peaceful retirement, etc. So it is easy to feel overwhelmed and sometimes worry about how you will achieve all your goals.

This is where goal-based investing helps. Goal-based investing is all about identifying your financial goals, setting a timeline for each one of them, and investing for them regularly to be able to reach them. So essentially, you give all your dreams and financial goals a structure.

Benefits Of Goal-Based Investing

1. You Can Identify Accurate Amount To Fulfil Your Financial Goal

When you do goal-based investing, you will list down the goal you want to achieve, by when you want to achieve it, and the money you will need for it. And while you do it, you will consider the current cost of achieving that goal and increase in its price.

For instance, let’s assume you want to plan higher education for your child 10 years away. Currently, it costs Rs. 10 lakh. When you plan for it, you will calculate how much it will cost in the future after factoring in the inflation. So, assuming an average inflation rate of 8% in education, it will cost nearly Rs. 21.6 lakh in 10 years. Now you know how much money you will need for this goal

2. Financial Goals Help You Pick Right Investment Products

When you know the amount you will need for a goal and know the time you have to accumulate that corpus, you can effectively build your investment strategy. You can pick from asset classes like equity, debt, gold, etc., as per your investment horizon and financial goals.

For instance, if your short-term goals, like travel, kid’s school fees, etc., you want the money no matter what. So your focus will be on collecting that money and getting some growth on it. And hence you will go for Debt Funds or even Fixed Deposits.

On the other hand, for your medium-term goals (3-5 years away) like buying a car, you can have a mix of Equity and Debt. That’s because you have a slightly longer investment horizon, and if there is some interim volatility or a fall, you can live with it. So Hybrid Funds become the right product for you. And on end are long-term goals for which you can pick pure equity funds and focus only on growing your money.

3. Financial Goals Help You Rebalance Your Portfolio

When all investments are linked to financial goals, it helps you review and rebalance your portfolio at correct intervals. And also enables you to adopt the appropriate asset allocation strategy.

For instance, when you approach a long-term goal like retirement, you need to gradually reduce your allocation from Equity and increase allocation to fixed income products. This is the key to protecting your gains and making sure you will have the money at the time you need it.

4. Financial Goals Help You Avoid Debt Trap

If you do not clearly define your goals and not invest in them, the chances are that you will not have enough money when the time comes. In such a situation, you might be forced to take a loan. The loan will help you achieve the goal at that point. However, you can end up in a debt trap.

Therefore, it is essential to stay clear of taking loans as much as possible. Take the goal-based investing approach and you will never need to take a loan in desperation.

5. Financial Goals Help You Maintain Fiscal Discipline

Investing without goals is a less disciplined way of investing. Many investors who do not have a goal in mind eventually stop investing due to some distraction or random reason.

But if you have specific goals to achieve, you are more likely to stay the course. Because you know that you will never reach your goal if you stop your investments. This clarity on the cost of not investing can be a significant driver to continue investing.

So you are more likely to deal with adverse market movements in a better way if you follow goal-based investing. This is a massive advantage because keeping your emotions at bay is as important as picking the right investment products in investing.

Bottomline

Mapping out all your needs gives you a clear picture of your finances. Goal-based investing helps you answer important questions like how much to invest, where to invest, and when to start investing. Moreover, it also gives you a purpose to stay invested. And helps you fight your biggest enemy – Your impulsiveness.

Source: ETMoney

Everyone has a bad habit or two. Biting your nails? Pulling all-nighters? Procrastinating? Guilty. Little habits become bigger patterns and can end up messing with your finance and your ability to achieve your goals.

But not all “bad” habits are actually, you know, bad. And if you believe popular health myths, you might go all in on trying to stop doing something that was never even bad for you in the first place. Good news is, with these “bad” habits that are actually good for you, you shouldn’t bother.

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.

A commercial crime insurance is a policy which offers comprehensive cover and provides protection against employees’ theft and any losses from forgery, computer fraud, etc. In the event of any commercial crime, it becomes the duty of the insurance company to safeguard the policyholder against various losses or damages.

Undeniably, you can’t ignore white collar crime which is rising at an alarming rate. Many times, companies don’t think of purchasing the cover against fraud. However, the reality is that it’s more the senior staff and trusted employees that commit fraudulent activities. And when they strike, they do it not for once but again and again over a period of time.

As a company, it becomes necessary for you to have a viable financial coverage instead of wishful thinking, to get protection against such fraudulent activities. Here, commercial crime insurance policy can play an important role.

Here are the coverages which are available with a commercial crime insurance policy=

Employee theft Cover= It includes loss of securities, money or other property by theft or forgery by the employee of the company.

Premise Cover= It includes losses from destruction, wrongful abstraction, theft of securities or money from the policyholder’s premises by third-parties.

Transit Cover= It comprises of losses from disappearance, destruction of money or security outside the policyholder’s premise by a third-party.

Depositors Forgery Coverage: It includes losses or damages which arise due to losses from instruments like cheques which are fraudulently drawn by a third-party on account of the policyholder

Computer Fraud Coverage: It comprises of losses which a policyholder has to endure due to computer fraud made by third-party along with the expenses which the policyholder has to incur due to a violation of computer.

In most of the cases, commercial crime insurance policy comes with a deductible clause which states that at the time of loss, a part of the claim would require being paid by the policyholder. The insurance company would pay the remaining amount. Further, most of the insurance companies allow customizing commercial crime insurance policy to cover various fraud-related losses as per the company’s specific requirements.

The insurance policy also helps by covering the additional costs which a policyholder incurs at the time of loss or damage. For instance, after the commercial crime, the policyholder may require a temporary replacement of equipments or temporary workforce or office space. Similarly, additional expenses may be spent by the company in transporting of documents or equipments. Here, the insurance company may pay the additional cost along with the additional cost incurred in bringing the external workforce on board.

Case

KS Automobile Spare Parts was situated in Pune. Backed with over 100 employees, the company had a huge clientele base both in India and abroad. Last year, the company got a big contract of exporting spare parts worth Rs 2 crore to a buyer situated in Dubai. Considering the quanturn of the order, employees were working in double shifts.

One day, a worker named Kishore was working in night shift. During the break when a few employees were outside the site, he took an undue advantage of the situation and stole ten packets of spare parts which were to be included in the part of the exporting order.

However, Kishore’s crime was captured on CCTV which was installed there. Though the company recovered the packets of spare parts were found; they were in bad condition.

The act of Kishore caused heavy losses to KS Automobile, who had to employ extra employees to manufacture spare parts which got damaged during the theft. It was an additional cost that the company had incurred. The entire incident made the management of K.S Automobile to think what could have been done to avoid the situation.

Solution

The situation would have been different if KS Automobile had a commercial crime insurance. The insurer would have come forward to cover the losses which the company had to incur due to theft committed by its employee. Further, as K.S Automobile had to pay extra to get additional workforce, the cost associated with it would have been covered by the insurance company as well.

Source: Secure Now

Stock markets are volatile by nature which tends to make investors nervous about their exposure to one asset class, especially equity. To get your asset allocation formula right at all times, it is important for investors to understand their risk appetite and choose the right strategy to build wealth in the long term.

Diversification plays a key role in your financial planning. We asked Chirag Mehta, Senior Fund Manager – Alternative Investments, Quantum AMC if there is a thumb rule for diversification to achieve financial goals in the long term.

“Diversification helps in balancing out the risks and returns to achieve adequate returns at the same time minimizing the risk for increasing the probability to get the return an investor is looking for,” he said during an exclusive session conducted by Economic Times to address investor concerns amidst market volatility.

Chirag Mehta also shared a tried and tested Asset Allocation Rule of 12:20:80 that works across market cycles and that investors should adopt while investing in mutual funds to mitigate risk.

“Asset Allocation Rule of 12:20:80 refers to 12 months of expenses kept aside for emergencies like job loss or loss in business or a medical emergency. The rest of the money needs to be split 80:20 which means 80 percent to be invested in equities and 20 percent in gold assets. Gold acts as a diversifier and adds stability to your portfolio,” adds Mehta.

Maintaining a good balance between asset classes that have appreciated too much and those that have not performed well in the short term is crucial. For investors to set the asset allocation right, it’s important to understand the characteristics of each asset class. “Investors should stick to their objectives while diversifying into different assets like equity, debt, and gold. Since asset allocation is for the long term, short-term volatility should not affect your portfolio,” feels Anup Bansal.

On factors that play a crucial role in rebalancing and monitoring the portfolio, Kaustubh Belapurkar, Director – Fund Research, Morningstar India says, “Rebalancing is within a strategic limit depending on investor’s needs and market conditions. From 80 percent, the equity allocation can come down by a few percentage points but never zero, this has to be remembered.

Gold can be a great diversifier provided investors have it in their portfolio at all times, not just when it’s performing. You have to stick to your thesis and keep rebalancing the portfolio within a confined (bracket) rather than trying to make it zero or one as it’s always about modulating the exposure where you see pockets of overvaluation and undervaluation.”

Source: Economic Times