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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!!!

 

 

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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!

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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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As a passenger, getting from point A to B simply includes sitting on your assigned seat and enjoying the flight till the destination. You are completely unaware of the preparation and planning that goes behind every flight.  A smooth flight is an end result of the meticulous preparatory work including facing any emergency.

All sorts of emergencies can happen during a flight. Engine malfunctions, instrument failures and unanticipated weather issues are just some of the emergencies pilots can face at any time.  In such times the long hours of training, learning from past experiences and pre flight preparations comes to the front and saves the day. Sometimes passengers are blissfully unaware of the issue and continue to enjoy the flight. All this all possible because one aspect, planning! More specifically, planning for an emergency.

Yet, more often than not, pilots in the Indian aviation sector seem to be unprepared for one kind of emergency that is their own personal financial emergencies.

Personal financial emergencies can be broadly classified into two types based on nature of emergency i.e. (A) loss of job or life and (B) unexpected big ticket financial commitments.

While both can prove to be a heavy toll on one’s finances, if we look back to the last 5 years of the Indian Aviation Industry, job losses have been a major theme throughout.

Now as a pilot you earn a handsome salary starting from a young age. Hence your lifestyle tends to be on the more plentiful side.  And this only increases in significant jumps as you climb higher in your career. As such expenses are always on higher side. Luxury cars, high discretionary expenses, significant EMI’s and top notch education for children. All well within your reach. That is as long as you continue to earn that kind of money.

But what happens if you can’t? What if salaries are not paid for months or worse, you are given the golden handshake. What then? Take a step back and think about this for a minute. Ask yourself, will I be able to continue to live the life I have led so far under such circumstances; at least temporarily till I can get things back on track?

A majority of pilots will fail to have an answer to this. And that’s far from ideal!

So what should you do now? How do you start preparing for such unforeseen events? A thousand questions and ideas might run through your mind. Maybe you can get it right, maybe not. But with the help of a trusted financial advisor, who knows the intricacies of the aviation sector, you could stand a much better chance of confidently facing such troublesome periods, safe in the knowledge that you were geared up for it in advance. Exactly like handling an emergency while flying a plane.

As professionals specialized in planning for the worse, it definitely be worth your time for us to meet and discuss how to enrich your life.

Till then, happy flying!

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blog picPilots are probably one of the most stretched professionals when it comes to time management. The constant flux in schedules is always a hassle. Even when you are not flying you are on standby which means that you are still on your toes. The weekly off standard in the Indian Aviation industry is one day every week. And money matters are usually the last thing you want to tackle on such a day. Life is already stressful enough as it is!

By most industry standards, Indian pilots take away a very handsome salary. The more experienced you are, the more significant are your financial takeaways. But it is not all rosy all the time.

With the high earning potential at a pilot’s disposal, it becomes vital to channelize these earnings to fulfil a whole set of commitments and dreams that are unique to a pilot’s life, both during their career and post retirement.

But what are some of these unique problems that only pilots face? Pilots for once, have to always be medically fit. And for good reason! Priority to healthcare hence takes prime importance. Now a pilot reading this might say, oh we are covered by our company, so I don’t have to worry above covering any financial cost regarding my health. But if you really think about it, is that actually enough?

Another thing which pilots always need to be on top of is upgrading their skill sets. Not so much a unique item, but very important nonetheless. And it does not come cheap. Preparing for it well in advance can be far more beneficial than just scrapping up every penny at the last moment to fund for this expense.

One another issue is the state of aviation industry and opportunities. The last few years have clearly demonstrated that problems are plenty in the Indian aviation sectors. For e.g.  Airlines have closed down, (leading large time periods of unemployment), pay can be delayed significantly or indefinitely. All these lead to great financial complications for pilots and their families. Preparing for such circumstances is prudent and must at all times be actively considered.

Probably the biggest challenge a pilot will face is retirement! With no more significant inflows, you are faced with a very real possibility of compromising on your lifestyle just because of a lack of proper planning and this change is not easy! This struggle can be easily avoided with some proper and sustained guidance throughout the earning years so that you can live through your golden years in comfort all the while fulfilling your passions.

Pilots are well aware of the importance of planning. Every flight involves hours of preparation beforehand so that you can take the best possible decisions in terms of route, landing approach and understanding weather patterns of the areas you will fly through, just to mention a few!

As a fellow professional with a prime importance towards professional planning, it would be definitley worth your time for us to meet and discuss how to enrich your life!

Till then..Happy flying!

 

 

 

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A large number of NRIs do not file taxes, as they live overseas and therefore believe that there is no need. However, there are two major situations when NRIs should file returns in India. Firstly, if the income earned in India exceeds the maximum permissible limit as basic exemption. At this point, the maximum exemption limit is Rs. 250,000. Incomes like salary arising from services provided in India, income from house property, capital gains arising from sale of property in India, income from deposits held in India will be taxable in India. Secondly, they should be filed to claim return if deducted tax is more than what was payable, so that you can claim a refund.

There are two major situations when NRIs should file returns in India. Firstly, if the income earned in India exceeds the maximum permissible limit as basic exemption. At this point, the maximum exemption limit is Rs. 250,000. Incomes like salary arising from services provided in India, income from house property, capital gains arising from sale of property in India, income from deposits held in India will be taxable in India. Secondly, they should be filed to claim return if deducted tax is more than what was payable, so that you can claim a refund.

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A lot of NRIs are unaware of the fact that in order to track expenses and investments above a certain threshold for all individuals – residents or NRIs, Annual Information Reports (AIRs) have to be filed by various entities in India like banks, Mutual funds,  bond issuers, registrars for real estate purchases above a certain value, amongst other transactions. Therefore, you could get a notice due to these reasons if your name appears in an AIR and you are not filing tax returns. Whilst this may not mean that taxes are due, you will need to respond to the notice, which can be rather challenging if you are out of the country. Thus, it is advisable to have your taxes in India in order.

If you are a tax resident in geographies where you may be able to take tax advantage of the double taxation avoidance treaty between India and that country, you must take advantage of that. If you sell direct equity/stocks, short term capital gain applicable is 15%. The long term capital gain on sale of direct equity is Nil ie for equities held over 1 year. NRIs have to trade through a broker if they wish to invest in direct equities. They can trade only on delivery basis and intraday trades are not allowed. They have to open a Portfolio Investment Scheme (PIS) account where their trades get reported within 24 hours.

If you are a tax resident in geographies where you may be able to take tax advantage of the double taxation avoidance treaty between India and that country, you must take advantage of that.

Debt and Equity Mutual Fundshave different tax rules. For equity Mutual funds the tax rate applicable is 15% for holding period of less than 12 months and for holding period of greater than 12 months it is Nil. Non equity mutual funds ie debt funds, gold funds, are taxed like real estate ie the tax rate for a holding period of less than 36 months is as per the marginal rate. If you hold them for a period greater than 36 months a long term capital gain tax rate of 20% with indexation is applicable .

If you are looking at investment options to save for your retirement goal then New Pension Scheme is an option you can look at. NRIs are allowed to invest in NPS.

NPS is useful for NRIs living in Middle Eastern countries, since they do not have mandatory social security benefits in their countries of residence unlike many other geographies. NRIs own contribution is eligible for tax deduction u/s 80CCD (1) of income tax act up to 10% of gross income with overall ceiling of Rs. 1.50 lakhs u/s 80CCE of income tax act.From FY 201516investors are allowed tax deduction of additional Rs. 50,000 under 80CCD1(B).

NRIs wishingto invest in FDs can look at Foreign Currency Non Resident ( FCNR) deposits. It is in the form of a fixed Term deposit account denominated in foregin currencies. In this case NRIs can park overseas income as foreign currency in India without having toconvert it to Indian Rupees. The rates on these deposits depend on tenure of investment and the currency in which you park your funds. Principal and interest are fully repatriable. For NRIs interest is not taxable in India. However, they could be taxed in the country of residence of the NRI, for example in the US. Similar is the case with NRE accounts.

A resident foreign currency account (RFC) account can be used by NRIs who are returning back to settle in India, to park overseas income as foreign currency in India without having to convert them into rupees. Funds are fully repatriable and can be transferred from RFC to NRE and vice versa. Interest earned on RFC account will be exempt from income tax as long as you are Resident but not ordinary resident (RNOR).

Image credit: www.taxinsightworld.com

 

 

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NRIs looking for higher rental yield should consider investing in a commercial property in India. Here is a look at the pros and cons of such an investment and advice on what to do and what to avoid while making this investment.

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NRIs keen to invest in a property in India should evaluate the prospects of the commercial (office) segment. This segment offers several advantages vis-a-vis the residential segment. The rental yield is currently higher at 7-9% p.a. compared to the 2-3% p.a. yield that the residential segment offers. Rental yields drop when one comes to smaller commercial spaces though, but are still likely to be higher than those offered in the residential segment. Whereas residential real estate in India is caught in a downturn which may last for quite some time owing to the high inventory levels in most leading cities, there is greater equilibrium between demand and supply in the commercial segment, and rentals are inching up in most leading metros. As the economic recovery gathers momentum, as is widely expected to happen in 2016 and 2017, the demand for commercial space should increase further.

This segment offers several advantages vis-a-vis the residential segment. The rental yield is currently higher at 7-9% p.a. compared to the 2-3% p.a. yield that the residential segment offers.

Another advantage of investing in a commercial property is that NRIs can use it to run their own venture if and when they return to India. However, be warned that the capital appreciation in office property tends to be lower than in residential property over the long term. And if you are looking for a loan to buy the property, that too may be harder to get than a loan for purchasing a residential property. While the Indian economy is on the cusp of a cyclical recovery, be warned that a downturn in the economy has a negative impact on the demand for office space. The office space you have bought could remain vacant or you may find it difficult to revise rentals upward.

Capital appreciation in office property tends to be lower than in residential property over the long term. And if you are looking for a loan to buy the property, that too may be harder to get than a loan for purchasing a residential property.

Outlook for office segment

According to CBRE South Asia’s third-quarter 2015 report on the office segment, sentiment within this segment is positive, with the ongoing economic recovery supporting the demand for office space. Leasing demand is expected to be steady in the coming months. Demand will be driven chiefly by IT-ITeS and banking and financial services. To a lesser extent, it will also come from manufacturing and engineering, e-commerce, research and consulting and pharma companies.

According to CBRE South Asia’s third-quarter 2015 report on the office segment, sentiment within this segment is positive, with the ongoing economic recovery supporting the demand for office space.

While demand in the central business districts of all the major cities will remain strong, there will also be demand in the peripheral markets from occupiers looking for cost-effective spaces.

The report from CBRE adds that demand for quality office buildings will be high and such spaces are likely to get leased out even before they are completed.

What to do? And what to avoid?

When buying commercial property, choose a location where the pace of economic growth and job creation is likely to be high in the future. While capital values tend to be lower in the peripheral areas of a city, the availability of empty land in the vicinity means that there is no limit on the supply that can come in. This has the potential to cap the growth in rentals in these areas.

When buying commercial property, choose a location where the pace of economic growth and job creation is likely to be high in the future.

Check the infrastructure in the locality that you choose to invest in. The area should be well connected by highways and possibly a Metro or rail link. The inner roads in the locality should be in good shape. The building that you choose to invest in should be situated on a wide road so that it is easily accessible.

Next, the NRI should check the credentials of the builder in whose project he intends to invest. One way to do so is to have a trusted source visit a couple of his older projects and speak to owners in those buildings. They will be able to tell whether the builder had delivered the project on time and had adhered to the quality standards that he had promised. Check out the quality of maintenance in his older projects. Either the developer himself or a maintenance agency could be handling this task. The quality of maintenance is crucial since it determines the ability of a building to attract new tenants.

Next, the NRI should check the credentials of the builder in whose project he intends to invest.

NRIs should get a lawyer to do the legal due diligence. This includes determining that the developer has acquired and is the rightful owner of the land on which he is developing the property, and has obtained all the statutory clearances for developing the property.

NRIs should get a lawyer to do the legal due diligence.

The stage of development at which the NRI invests in a commercial property also determines its level of risk. If he invests in a property that is under construction, he is likely to get more capital appreciation in it. But he will also have to face what is known as development risk—the risk that the project may be delayed or may not be completed at all. On the other hand, if he invests in a property that is completed but not rented, or completed and rented out, he is likely to get lower capital appreciation in such a project. But his risks will also be much less.

If he invests in a property that is under construction, he is likely to get more capital appreciation in it. But he will also have to face what is known as development risk—the risk that the project may be delayed or may not be completed at all. On the other hand, if he invests in a property that is completed but not rented, or completed and rented out, he is likely to get lower capital appreciation in such a project. But his risks will also be much less.

Owing to the slowdown in the real estate market and their inability to raise cash either from buyers or banks, developers nowadays offer assured return schemes on their commercial projects. It would be best for NRIs to avoid such schemes . In fact, the very offer of such a scheme indicates that the developer is probably in a tight corner financially. To avoid the risks that such schemes carry, NRIs should instead invest in a developer who has a strong track record and has the financial wherewithal to complete his project.

NRIs should also avoid investing in the soft launch of a commercial project. Developers offer a discount of 7-10% to investors who invest in their project at this early stage. This is the stage when the developer may not have completed the acquisition of land or acquired the permissions for developing the project. Due to the high risk involved, NRIs should avoid investing at this stage as well.

NRIs should also avoid investing in the soft launch of a commercial project. Developers offer a discount of 7-10% to investors who invest in their project at this early stage. This is the stage when the developer may not have completed the acquisition of land or acquired the permissions for developing the project. Due to the high risk involved, NRIs should avoid investing at this stage as well.

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