Feeds:
Posts
Comments

Archive for the ‘Money & Finances’ Category

opt 3Having a girl child is a moment of great joy for parents! But planning for the darling daughter’s future is also something that is always top of the minds of Indian parents. Early and sound planning can go a long way in ensuring the future of your daughter. Following are some ideas that as a parent you could consider when planning for your daughter’s future:

Ensuring Medical Cover is in place:In an ever changing environment and the growing threats of lifestyle related health problems, children are no more immune to major health concerns. As such, having them medically insured should be on high priority. While a stand alone health policy might be excessive, including them in your family floater is a practical option. Depending on the policy you chose, the minimum age requirements can range from 91 days to 3 years old.

Investing for your Daughter’s Future:Indian parents today are still actively looking to fund for their child’s future. Additionally parents of the daughter are still largely expected to fund for the “Big Fat Indian Wedding”. Following are some of the investment options out there which parents could consider and evaluate basis their requirements:

 

 

  • Sukanya SamriddhiYojana: A government initiative to encourage Indian parents to invest specifically for their daughter’s future. It provides the highest guaranteed returns of all government investment schemes and is currently providing 8.4% p.a. tax free. Furthermore, contributions to it are eligible for tax deductions upto Rs. 1.5 lakhs under Sec 80C. While some might criticise its lock in policy, the other way to look at this that it is a significant tool to partially, if not fully fund, the most important requirements of the daughter i.e. Her Education and Marriage

 

  • PPF: Another popular government scheme. Similar to Sukanya SamriddhiYojana in providing tax benefits under Sec 80C. However the current tax free returns are 7.9%. With a 15 year fixed lock in policy, its highly advisable that the parents open the account during the daughter’s early childhood and invest regularly in it to achieve a sizable corpus.

 

  • Mutual Funds: A combination of Equity and Debt Mutual Funds are a great way to ensure both short and long term goals of the daughter are met. One needs to identify which type of mutual fund and subsequently which scheme under that type would be most appropriate to invest into basis the requirements.

 

  • Gold: An all time favorite for Indians. While traditionally Indians have always bought and kept physical gold, there are more convenient options now available. Gold ETFs and Sovereign Gold Bonds are becoming increasingly popular among Indian investors.Both track gold prices and have the added advantage of no storage/making costs and no risks of theft/tampering.

 

  • Child Plans: Various Mutual Funds and Insurance Companies provide plans that are specific for children. Most of these options have a stringent lock in period and take exposure in equity and debt markets.The lock ins on these plans may work in favor when parents are looking to match the lock-in with the daughter’s goals.

Estate Planning:As a minor, two aspects become critical in ensuring that whatever hard work that went into planning for the child does not go to waste in case of a sudden demise of one/both parents. A will helps to confirm who will be the legal guardian of the child in case of an unfortunate event. It will also ensure that the money meant to go towards the requirements of the daughter actually is received by her at an appropriate time and the wishes of the parents as regards their monies for the daughter are honored.

Parents are always concerned with providing for their children. As such, it is always advisable to start planning early on in the child’s life. Understanding the child’s near and long term needs is a good way to start planning. And the correct planning can ensure peace of mind and happiness for both the parents and the daughter.

 

Advertisements

Read Full Post »

FinalTreasuryManagmentAs the owner and /or CEO of your HR Consultancy firm, cash flow management is a constant topic of discussions with the finance and accounts team.

What do with the excess cash in hand? Where should it be deployed so that it works a little bit more and grows whilst being highly liquid and safe? How does one ensure that enough reserves are maintained to fund working capital expenses during the low business cycles?

What makes cashflow management critical is that it helps the firm maintain the business flow and also balance better returns for idle money. This in turn goes a long way in ensuring operational functioning and continuity. The question is how is this achieved?

First things first, when you talk about treasury management, you are indirectly referring to constant flow of money in very short time periods. And as most boutique/SME’s face volatile business turnovers, money can be required on priority basis at any point. Hence the priority in Treasury Management primarily lies in ensuring liquidity and safety of capital invested rather than high returns.

Secondly, while significant growth in short term investments should not be expected; it should not necessarily be considered that there are no better options other than the company current account. While Fixed Deposits and Recurring Deposits have been traditional avenues for company owners to park extra monies, they remain inefficient from a taxation perspective. Tax Deducted at Source (TDS) is a definite thorn as tax incidence is occurring even though there are no capital gains received in hand.  Furthermore, falling interest rate scenarios are making them an even less attractive option.

An alternative that should be considered is liquid/ultra short Term/ short term debt mutual funds. Two aspects they score over traditional avenues is (A) they usually do not have any exit penalties  as compared to bank FDs and (B) they are more tax efficient due to tax deferment, as tax incidence only occurs at the time of realised capital gains at the hands of the investor, and they are eligible for indexation benefits as gains from any debt mutual fund investment held for 3 years or longer are taxed at 20% after indexation, thereby improving post tax returns.

In addition, often companies decide to park certain monies with a longer term view. This could be to prepare for possible expansion/acquisition as envisaged in their business plans. But as the requirement of funds is not in the immediate future, short term investment options might not work out in the best interest. Hence separate planning should be considered for such investment purposes.

Last but not least, understanding past company cashflows and extrapolating the data to approximate future cashflows is essential to determine the kind of investment strategy would be ideal. This analysis, while including business growth projections, should also include current liability repayments and expected abnormal gains in the future.

While managing cashflows will indeed be a constant objective, through efficient planning and proper advisory it need not become a source of constant headaches.

Read Full Post »

As was broadly expected, RBI cut policy rates by 0.25%, taking repo rates down to 6%. This was brought about largely due to the annual retail inflation in June to be the slowest for over five years and as expectations for inflation going forward remain at about 4%, a number that RBI seems to be comfortable with. In addition low core inflation, a good monsoon thus far and a reasonably decent GST roll out thus far. They also held the stance as neutral which was expected, considering that too many shifts in policy could impact long term credibility.

The good news is that the 6 member committee decision was not unanimous – four members voted for 25 bps cut, the fifth voted for a 50 bps cut and the last one voted to maintain status quo.  Hence repo rate got reduced from 6.25% to 6%, reverse repo rate from 6% to 5.75% and marginal standing facility (MSF) rate from 6.5% to 6.25%.

Big Image- What does the Monetary Policy mean for RBI monetary stance

Focus on the real rate of return

With interest rates remaining subdued, there is a tendency to want to take greater risk on the portfolio to achieve a higher absolute rate of return. We think that it is critical that investors focus on real rates of return ie the return after inflation on their portfolios. We believe RBI continues to keep its focus on real rates of return at 1.5% – 2%, which makes fixed income attractive at this stage. Avoid higher risk strategies in chasing a higher rate of return in the current environment, as the risk return trade off may not be favorable.

Your Investments

The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The neutral stance does not mean that there won’t be any future rate cuts, but it does seem like rate cuts going forward may be slow and investors expecting a repeat of the returns from bonds made over the last few years, are likely to be disappointed, if they have very high expectations.  The bond and equity markets had probably already priced in this 0.25% rate cut and thus they did not react  to this announcement. It may be a good idea to have bond fund exposure being weighted two thirds towards accrual/hold to maturity strategies and one third towards duration/dynamic strategies. With global bond yields in developed markets headed upwards, investors in equities may need to be careful, especially with equity markets priced to perfection.

Your Loans

The RBI decision to cut its policy repo rate to 6 per cent is likely to lead to a further cut in the lending rates, especially home and car loans by banks. New borrowers can expect EMIs to come down and which would also cut down interest outgo over the loan tenure. Banks may come also up with promotional offers till the festival season to attract more customers. Old borrowers under the MCLR would have to wait until the next reset period to get the rate reset as normally rates are reset once in a year. There is also an option for the old borrowers of switching the loan portfolio to another lender. The decision to examine how the shift to MCLR has worked, considering that most loans are still linked to the base rate, would be interesting to watch closely as RBI has set up an expert committee to look into how monetary transmission can be more effective.

Way Forward

With inflation being the focus of the RBI, the factors determining inflation as mentioned in the Monetary Policy include:

(a) The impact on CPI of the implementation of house rent allowances (HRA) under the 7th central pay commission (CPC); could be estimated to have a 1% impact on inflation over the next 12-24 months

(b) The impact of the price revisions withheld ahead of the GST; and

(c) The movement of food and fuel inflation.

Watch out for inflation, the movement of the Indian rupee and how the economic slowdown led by weak manufacturing and cape data, till the next RBI policy on 4th October 2017.

Read Full Post »

Crisis 5

In today’s ever changing world, with all the geo-political, social, and technological dynamics, job surety is no more a luxury anyone can afford. Be it the CEO of a M.N.C. or a mid level manager, the changing landscape compels us now more than ever to be prepared for the worst.

Even pilots aren’t immune to such extremes. From domestic industry uncertainties to global events, pilots need to be equipped to face such an eventuality. One such recent example is the Qatar diplomatic crisis. With the neighbouring countries cutting diplomatic ties with Qatar and shutting down their airspace for any Qatar bound plane or vice versa, a sense of being besieged looms in the country.  Now while this does not directly result in job losses, such incidents raise the fear, specifically for businesses closely linked to Qatar.

Therefore prudence calls for having certain provisions in place that can help ease this fear. A sort of backup or cushion for facing an event you might have never fathomed.

A checklist of such provisions could possibly look as follows:

Self funded health insurance coverage is important – Most pilots would argue that the employer already provides for this. But that’s the point right? What happens if you get the golden handshake? Guess what, no more health cover. And even if you get a new one, they always come with a waiting period. This means you won’t be covered for a certain period from any pre existing illness. This would not be a situation that you would like to end up with.

 

Personal Accident Policy and Critical Illness Policy coverage – Extending the above point, it’s critical that pilots have a personal accident and a critical illness policy. In the months of no income, one needs to ensure that one is covered for all kinds of risk. In cases where families may have accident or critical illness exigencies during such a period, such types of policies are a godsend. Such personal accident policies, for example provide the insured with either weekly allowances or in some cases a lump sum payout depending on the terms and features of the policy. These payouts can be used for medical expenses that come along with treating such eventualities.

 

An Emergency Fund is a must have – A highly liquid investment is the preferred choice to host such a fund, as it’s meant for immediate use. While Bank FDs and saving accounts is the age old choice, research and time has proven they are better options out there. One such alternative is Liquid Mutual Funds. These typically provide the similar liquidity and safety – principal features that a bank savings account offers, but with the added incentive of significantly higher returns on the investment. These returns currently are in the range of 6-7% versus 4% on your savings account.

 

The objective of this corpus should be to provide enough to maintaining the essential household expenses + EMIs in case of sudden exigencies and or temporary absence of income. Thumb rule states this corpus should ideally support 6 months of household expenses, including EMI’s and Insurance Premiums.

 

Move towards conservative assets – If you feel the crisis period is going to be prolonged then you are better off cutting down on riskier investments and moving towards conservative assets. Why so? Because liquidity needs could crop up anytime. Hence capital protection and not capital appreciation must take the driver’s seat.

 

While in all probability this crisis might be short lived, planning for it should not be left unattended. Like the saying goes, “Better to be safe than sorry”! And checking off this list could just go a long way in maintaining that safety net at all times, even when you might feel down in the dumps financially.

 

Till then, happy flying!!!

 

 

Read Full Post »

MEdical emergencyPilots lead highly strenuous lives. They are responsible for the lives of hundreds of passengers while flying a 200 ton highly advanced and pressurised aircraft. That’s a whole lot of responsibilities!

As such pilots are mandated to maintain high medical fitness standards. These stringent standards are kept in place to ensure pilots remain at the top of their health as long as they are on flying duty. Keeping this in mind, airlines can ground pilots on medical grounds, both temporarily and permanently. In either case, a pilot can face financial insecurities which can hamper his or her life’s plans. Therefore, it is imperative that pilots of today prepare for such kind of medical contingencies.

While avoiding a medical problem completely may not be possible, it is very much possible to mitigate that risk.  This can be done through meticulous planning and understanding what kind of financial products would help in such scenarios.

Firstly, let us look at a scenario where a pilot, say Mr. X, is temporarily grounded on medical grounds. These could be due a variety of reasons such as chest pain, congestion of the lungs, fractures or incapacity to fly due to external/internal injuries, even pregnancies!

A multi pronged approach can be used to deal with such an event:

One, pilots should always take a health insurance for themselves. This can be sought either personally, many times through the employer or certain pilot associations may also provide such policies. A basic health insurance policy helps financially tackle any hospitalisation expenses for general medical procedures. While this is a basic policy which every individual should have, pilots should go one step ahead.

Second, procuring a Personal Accident Insurance and Critical Illness Insurance plan should be very much on the priority list. In a nutshell, a Personal Accident policy involves payout of a lump sum in the event the insured suffers an accident.  Depending on the policy terms, payout is based on the severity of the injuries from the accident. Some policies have a beneficial feature called Temporary Total Disablement. This is a unique feature in which if the insured suffers temporary disablement of a certain severity, the policy mandates to give a weekly payout to the insured for a certain period! This can be highly useful if the insured is grounded for a while and has his/her’s income temporarily suspended. It becomes an ideal income replacement. Some insurance companies provide this feature for a period up to 100 weeks, that’s two years! Also some companies give a compensation up to a total of Rs. 5 lakhs. That is Rs 40,000 p.m. for 2 years. Not a bad proposition.

On the other hand in a Critical Illness policy, a lump sum is handed out to the insured when he/she is diagnosed with a severe illness that is under the coverage of said policy. The critical illnesses covered are kidney failures, some forms of cancer, major burns and major organ transplants to name a few. The lump sum from either policy can be considered as a replacement of income for the insured as the patient is most likely to be out of work for a certain period. As such the usual sum assured of such policies are in multiples of ten lakhs.

Lastly, tackling a temporary grounding is keeping enough monies handy to pay for the various tests and certifications the pilot has to pass to regain status of an active pilot. While some of these tests might be covered by the concerned employer, some might not, depending upon the certification and seniority of the pilot. And a lot of times these certifications have a substantial fee. So a dedicated liquid corpus to handle such situations is always advisable for pilots.

Like a temporary suspension of the job has its own hurdles, permanent grounding due to medical reasons has its own challenges that must be overcome. The biggest issue in such a case is obviously how to cope with the very significant loss of income. On top of that, major medical conditions add to the depletion in assets. Certain medical conditions related to cardiac conditions, optical and vision issues, mental disorders etc are such examples. Hence funding to treat this illness will also have to be arranged.  Such a sudden loss of income results in compromise on expenditure choices, especially lifestyle expenses. This is a hard pill to swallow, especially if you are used to having the best of everything. While holding all above mentioned types of insurance policies goes without saying, in such a case this might not suffice. Hence setting aside a large enough corpus to deal with such an event has to be planned and arranged for. A lot of factors go into deciding what corpus this should be, such as current income, current monthly expenditures, estimates on current big medical surgeries and medication, inflation, age etc. It requires careful factoring of each aspect and coming to a reasonable amount that is feasible for the person but also able enough to help in such scenarios.

All pilots are aware of the risks that go along with not complying with medical and health standards. Yet many a times they blissfully remain ignorant to the fact of preparing for such events. A financial advisor has the required expertise to help with such contingency plans. Including them in such planning could mean all the difference between comfortably navigating a temporary/permanent job loss or leading a life of compromise and constant worry.

So prepare well before takeoff to have a safe flight!

Read Full Post »

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.

Read Full Post »

Older Posts »

%d bloggers like this: