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Archive for the ‘Asset selection’ Category

Retirement 1Retirement is usually something that is not considered by most of us till we are nearing it, so naturally we do not plan for it, until it is probably too late. This general ignorance or lack of attention to retirement planning can have far reaching consequences.

Retirement planning in the simplest sense means preparing for life after the tenure of paid work ends.  This does not only include the financial aspect, but other aspects such as what to do during retirement, the lifestyle choices that one can take and what dreams one might want to pursue during the remainder of the years.

While the concept of Retirement Planning applies to pilots just as it does to other individuals, there are certain unique points that are exclusive to retirement planning for commercial pilots. These unique points are crucial while developing a retirement plan for a pilot.

Firstly, under the current DGCA rules, the retirement age in India has been pushed up to 65. This is an entire 5 years longer than the mandated retirement age in most other industries. This translates to more income earning years, probably at the highest salary slab of the industry, since usually pilots around this age are most likely to have their designations as Captain. This extra income earning period is crucial in formulating and ironing out the retirement plan before the pilot ultimately retires. The significant income flowing could be the difference between living a compromised and a fulfilling retirement.

One of the most important things a commercial pilot has to consider is Lifestyle Inflation. Because commercial pilots have one of the best salary packages amongst all industries, they tend to have more lavish lifestyles. And they are comfortably able to match up the ever increasing expenses that come alongside their lifestyle choices. But on retirement, the salary stops. Yet expenses continue to stay, with inflation only adding to it. But more significantly no one would want to compromise on their lifestyle they have become accustomed to. As such it becomes imperative to plan much ahead so that lifestyle compromises don’t become the norm during your golden years.

Just to drive home the impact of inflation, let’s take an example. Consider a pilot Mr. A, currently 30 years of age and has a monthly expenditure of Rs 12 lakhs every year (not a very high amount, from what we hear from our pilot clientele). Assuming he will retire at age 65 and taking an average of 8% lifestyle inflation till retirement,  the same Rs. 12 lakhs expenditure will inflate to approx Rs. 1.75 crores. In other words, to maintain the lifestyle that costs Rs 12 lakhs as of today, Mr. A would require Rs 1.75 Crores annually to maintain the same expenditure choices, forget upgrading!

Furthermore, pilots are used to having extremely busy schedules. So when retirement hits, they are unprepared to handle the ample time in hand. Hence they always look for options to keep themselves engaged. This could mean, taking long leisure trips or finding, researching on and investing lump sums in “exciting investment avenues”, committing money to be part of a start up or just following their long drawn passions or enrol at the local flying clubs just so that they can regularly indulge their lifetime love of flying. All this comes at hefty financial expenditures.

All of the above means that Pilots would need to plan and develop customized retirement plans for themselves to ensure a smooth flight during retirement.

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policy3

Sixth bi monthly RBI Monetary Policy FY17

The RBI monetary policy committee ( MPC ) reiterated what it has indicated in its last meeting in December – concerns around core inflation continue to remain with seasonal impacts on currently low inflation on items like vegetables likely to go away over a period of time, a strong global recovery that could create inflationary risks though higher prices of commodities including oil, volatility in global currencies on the back of rate hikes in some developed economies and some pass through of the HRA component of the 7th pay commission implementation.

Whilst none of this was really new, there continues to be a view that what the MPC says and what they will do are different from each other. With two consecutive policies that have reiterated the same thing, we believe that markets will finally believe that the MPC means what they say, and their actions will be consistent with the same.

It is therefore critical to continue to remember that managing inflation in the 4-5% pa range continues to be the number one priority of the RBI , and therefore decisions are likely to be taken keeping this in mind, more than other data points.

Your investments

The RBI also moved its policy stance to ‘ neutral ‘ from ‘accommodative ‘ which possibly means that the interest rate cuts from its side are probably coming to an end. This may mean that investment strategies that were driven around interest rate cuts need to be pared down. However, we need to remember that a neutral policy does not mean that interest rates are going to go up on bonds and fixed income instruments, so there is no need for a complete change in investment strategy on fixed income side. A strong global recovery as indicated in the policy statement ,is actually excellent news for the Indian economy, as a global growth environment has traditionally been positive for Indian companies, and therefore one should expect corporate earnings to get better going forward. The MPC has also indicated that they expect the economy to start showing a recovery going forward, so investments in equities could be enhanced for longer term investors. One also needs to remember that even thought RBI has probably stopped cutting interest rates, banks would possibly continue to cut loan rates as the transmission of the 1.75% rate cuts have only been about 0.85% to 0.9%, meaning that corporate India could continue to see lower loan rates going forward, helping their bottomline.

Your loans

With the banking sector flush with funds, and transmission only partially done, you can expect to see loan rates continue to drop for individual borrowers as well. It is a good time to refinance your loans, especially your home loan, in case you have not done so already. Be choosy about the loan provider that you use, as different variants of loans available could mean that you need to pick what works best for you.

April 6 is the next date to watch for the MPC meeting – expect some volatility in bond and currency markets till then, as they react to this shift to a neutral stance as well as other global events.

 

 

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NRI final

Image Source: dir.indiamart.com

Most NRIs typically have assets both in their country of residence and in India. These are typically a mix of both financial and real assets. Managing the assets in India can pose a number of challenges due to the fact that NRIs live thousands of kilometres away and visit the country after long gaps. These should be kept in mind whilst managing your personal finances. Here are a few tips they can use.

Avail of DTAA: If you live in a geography with which India has a double taxation avoidance agreement (DTAA), then you will typically be taxed at the lower of the two rates (the rates applicable according to the Income Tax Act in India and the DTAA rate) on, say, interest income on your bank deposits in India. But to avail of DTAA you will have to submit a tax residency certificate (TRC) verified by the government of the country in which you reside and Form 10F. You will also have to submit a self-declaration cum indemnity form, self-attested copy of PAN card, and a copy of your passport and visa. These documents have to be submitted every year. Unless you submit these documents in advance, the bank will deduct tax on interest income at the highest tax rate in India.

To avail of DTAA you will have to submit a tax residency certificate (TRC) verified by the government of the country in which you reside and Form 10F.

Don’t omit to file tax return: NRIs need to file tax return in India if their income here exceeds the basic exemption limit. You also need to file tax return if the tax deducted at source (TDS) exceeds the tax payable and you wish to claim a refund, or you have a loss that you want to carry forward.

Salary received in India or salary for services provided in India, rental income from property, capital gains on sale of assets in India and interest from deposits will all be taxable in India. Any income that you earn outside India is not taxable in India if you are an NRI.

NRIs need to file tax return in India if their income here exceeds the basic exemption limit. You also need to file tax return if the tax deducted at source (TDS) exceeds the tax payable and you wish to claim a refund, or you have a loss that you want to carry forward.

Be practical about asset selection: Like their resident brethren, NRIs too have an inordinate fondness for investing in real estate. Before you do so, however, give thought to how the property will be looked after and maintained. Avoid investing in a plot as it is most vulnerable to encroachment. Even the maintenance of an apartment can sometimes prove burdensome. While facility management is fairly common overseas —you can entrust the maintenance of your apartment to a professional agency, that is not very common in India.. You may have to depend on an individual to act as caretaker. This person must be reliable. If you lock up the apartment for years together, its condition will invariably deteriorate. In this context, investing in financial assets provides a more hassle-free alternative, even if it may not provide the same emotional satisfaction as investing in real estate.

Investing in financial assets provides a more hassle-free alternative, even if it may not provide the same emotional satisfaction

final power of att

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Use power of attorney, but judiciously: While NRIs can handle many transactions online, some require their presence. In such cases, it may become essential to appoint an agent to act on their behalf. By giving a power of attorney (PoA), you can empower someone to do so. A general PoA allows a person to undertake all transactions on your behalf. A special/specific PoA, on the other hand, empowers the person to act only in a specified matter. While granting a PoA is useful, it can also be dangerous as there is a risk of these powers being misused. Remember that you will be responsible for any liability arising from your agent’s actions. Avoid giving a general PoA as this increases the scope for misuse. The PoA should be given only to someone who can be trusted absolutely.

In the field of real estate, PoA can be used to lease property, collect rent, sell the property, etc. In the financial markets, PoA can be given to someone to buy and sell stocks, bonds and other securities. In banking, PoA can be given to someone to deposit or withdraw money from the account. Your agent can even sign your tax returns, insurance forms, etc on your behalf.

While granting a PoA is useful, it can also be dangerous as there is a risk of these powers being misused. Remember that you will be responsible for any liability arising from your agent’s actions. Avoid giving a general PoA as this increases the scope for misuse. The PoA should be given only to someone who can be trusted absolutely.

estate planning

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Don’t ignore estate planning: NRIs are as guilty as resident Indians of not writing a will. In their case, the consequences of passing away without a will be even more onerous for their loved ones as the latter will have to deal with the jurisdictions of two countries. It may also mean that your assets may not be distributed in a manner that is to your liking. If you pass away without a will, the laws of succession of the country in which you reside could apply. In countries where Sharia laws apply, for instance, your male successors could have an advantage over female. The absence of a will also means a lot of paperwork, bureaucratic hassles and legal expenses for loved ones before they are able to gain control of your assets.

Remember that while there is no estate or inheritance tax in India, it does exist in many other countries and it could take away a sizable chunk of your wealth.

It may be a good idea to create a separate will for your assets in your country of residence and for your assets in India. After creating the will, inform the executor about where to find it. Also, create a list of your assets and share the information with your family.

It may be a good idea to create a separate will for your assets in your country of residence and for your assets in India. After creating the will, inform the executor about where to find it. Also, create a list of your assets and share the information with your family.

Use software to get single view of assets: The benefits of using aggregation software is that you will be able to know the value of all your assets at a single glance. You will also be able to see the date of purchase and sale of assets and the capital gain or loss made, quite easily. This is also critical for your family in case something happens to you.

Distance and dealing with the laws of two jurisdictions do make the NRI’s task of managing assets difficult. He can only do a competent job if he is aware of the challenges, informed about his options, and disciplined in execution. NRIs should be open to seeking professional expertise wherever needed.

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