Why everyone needs a financial planner……and I mean it when I say everyone!

A lot of people wonder “Why do I need a financial planner?” or “Why do I need a planner when all financial calculators are available online?”. Some people also think that “I cannot afford a financial planner as I do not have enough wealth!”. Many people who are not aware of the benefits of having a financial planner think this way. These thoughts and ideas are some of the myths that we shall address in this blog today.

With the abundance of information available online, the role of a financial planner becomes even more critical as every financial plan is customized to suit the needs and goals of the individual. A planner will give you a bird’s eye view of your financial situation because they are on the outside and can look at your finances holistically.

With the ever changing and dynamic global and domestic economic conditions and financial markets having a financial planner is of utmost importance. A prudent planner cannot predict, but will always guide you well to be prepared for global or domestic events which can have material impact on your financial goals.

A financial planner advises you on the following-

• How much you need to save while you are earning?
• How much would you need for retirement as per your lifestyle and nature of expenses?
• What type of loans you should have or payoff?
• How much and what type of insurance you need?
• How much you should have as contingency funds?
• How can you be more tax efficient in your investments?
• How much returns should your investments generate in order to achieve your goals?
• How inflation will affect your goals and finances? What projections and estimates are to be considered to account for inflation while planning for goals?

 

A financial planner helps you to organize your finances and assesses how prepared are you for your goals – for example – retirement. Professional financial planning goes far beyond just picking stocks or products. Hiring a planner arms you with the expertise and resources with which to approach planning your financial future.

 

A common misconception that people have when it comes to financial planners is that they will make you a millionaire overnight or advise you to invest in stocks which will give you multi-bagger returns. Financial planners help you to prioritise your financial goals and work with you to devise ways to achieve them.

 

A financial planner would be aware of appropriate financial opportunities and investments which will help you in taking wise financial decisions. Helping clients avoid ‘buy high and sell low’ is also one of the great benefits financial planning can bring. A planner will help you stay invested  in a bear market and at the same time will help you not get over-optimistic in a bull market.  A recent neuroscience experiment has proved that people with expert financial guidance are less stressed and better able to face challenges and absorb information relating to their own financial decisions.

 

So you may say that – “Why do you need a Financial Planner? I can do all this for myself”. For this you have to ask yourself these few questions-

• How prepared are you to spend hours to assess the fundamentals of a mutual fund or company whose stock you are buying?
• Can you spend hours analysing and building a portfolio that can give you retirement income and is tax efficient?
• Can you analyse the complexities of different PMS products, mutual funds, insurance plans and annuity plans and determine the best mix for yourself?
• Can you keep regular track of your goals and related investments?
• Can you objectively assess your portfolio and keep emotions out of your financial decisions?

Usually we find the answers to most of the above lead to the need of seeking the professional help of a financial planner.

 

A financial planner possesses specialized training, knowledge, certifications and the requisite experience to handle all the above possible options. A financial planner is therefore better equipped to plan for you.

To put all of this in a nutshell, a financial planner helps you set your priorities and financial goals, helps understand the corpus needed for each of them and guides in devising customised ways and means to achieve your set goals.

Even in the busiest or most stressful times in your life – be it marriage, birth of a child or job change or any such transition, the financial planner is able to safeguard and nurture your wealth with sound advice and experience. In such situations of transition, a planner instils a kind of financial discipline and diligence which is much needed.

When you normally want to get a job done right, you usually hire an expert, so why should the same not hold true in the case of your finances? Talk to Plan Ahead Wealth Advisors today to know how a financial planner can help you.

 

 

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IMPACT OF FALLING RUPEE ON YOUR FINANCIAL PLANNING AND INVESTMENTS

Often when the exchange rates cross a threshold, the stock markets get jittery and turn volatile. In the last year or so, the rupee has depreciated over 10 percent against the US dollar. Weakening of the rupee can be attributed to the following factors – increase in crude oil prices, rising US yields , US stand on tariffs, weakness in emerging markets, slowdown of foreign inflows into India.

Negatives of a weak rupee

Depreciating rupee increases the cost of imports. India being a large importer of crude oil, a weak rupee adversely affects inflation. A high inflation rate contributes to an increase in the household expenses. This means lesser savings which has an effect on your overall personal finances. As inflation and interest rates move in the same direction, consistent high inflation rates could lead to an increase in interest rates making loans expensive. A depreciating rupee also has a negative impact on any expenses to be made overseas such as foreign education and travel.

Benefits of a weak rupee

A weak rupee would benefit NRIs making remittances into India and also benefits redemption of foreign currency denominated investments. However, it can have a mixed effect on equity investors depending on how exposed or diversified their portfolio is.

Investors of mutual funds having exposure to foreign stocks benefit when the rupee depreciates. International funds have two ways of generating returns – performance of the underlying stocks and currency movement. In recent times, such investments have gained from the rupee’s depreciation.

Incase of a well-diversified long-term portfolio rupee depreciation would not have too much of an impact. However, individual stocks would see volatility if they are in the export or import business, or are financing them.

 

Impact on your investments and budget

The recent, sharp decline in the rupee will impact not just your planned vacation abroad or studies in a foreign country, but also your investments and budget. Find out how to counter its debilitating effects.

A – Monthly budget

THE IMPACT: Imported commodities like fuel or medicines, or products that depend on imported inputs for their manufacturing will become expensive. These can include FMCG products like soaps and detergents, which use crude oil as the base, as well as cars and electronic goods, which depend on components from abroad.

YOUR STRATEGY: Rationalise your spending by slashing discretionary spends like those on entertainment and travel, and it may help cushion the hike in prices of essential items.

 

B – Salary

 

THE IMPACT: The rupee’s fall may also result in shrinking pay cheques for some especially in industries that are dependent on imports since it results in an increase in production and operation costs. To keep their margins intact these companies could cut costs one of which is human resources. Hence doling out lower increments and a freeze on hiring may be an option.

 

YOUR STRATEGY: IF your skill sets are aligned only to the sector you are in, a job switch may lead to an above-average hike.

 

C – Investments

 

1. EQUITY INVESTMENTS

 

THE IMPACT

– It may result in an FII exodus, both from equity and debt markets.

– It could raise inflation and the RBI may raise rates which further hurts business input costs.

– A depreciation of Rs 1 against the USD increases oil under-recoveries by Rs 9,000 crore. This is a negative for oil marketing companies(OMCs) and worsens the fiscal deficit.

– While the exporters benefit, import businesses suffer.

– The companies with foreign debt may find it difficult to service it.

 

YOUR STRATEGY

– Stay with defensive sectors like IT, pharma and FMCG for now.

– Since the RBI is not expected to cut rates soon, avoid high-beta, rate-sensitive sectors like real estate and infrastructure for now.

– Since the rupee depreciation will compound asset quality issues, it is better to concentrate on private-sector banks or some PSU banks with high asset quality.

-The government may not allow OMCs to pass on the additional import costs before elections, so avoid these till there is clarity.

– The companies with high foreign debt are in a precarious situation, so steer clear of these for the time being.

– To diversify impact invest in equities via mutual funds as single stock exposures could drag your portfolio

 

2. DEBT INVESTMENTS

 

THE IMPACT

– Bond yields expected to remain under pressure at the longer end.

– There is a chance that RBI may keep or hike repo rates so interest rate hardening is expected.

– The FII outflow from the debt market due to depreciation fears can raise yields; the 10-year yield has already gone up in the past few days making long term debt volatile.

 

YOUR STRATEGY

-Since the interest rates are expected to be volatile, it would be prudent to stay in short term debt papers and accrual/hold to maturity investments.

– Credit risk strategies would be an aggressive bet given the current scenario

– Do not resort to a knee-jerk strategy shift.

 

3. GOLD

 

THE IMPACT

– Dollar appreciation brings down the international gold price. Currently, it is below $1,200/ ounce, a 34-month low.

– However, the rupee depreciation cushions a part of the global crash.

– Gold accounts for a big part of the current account deficit, so the government may take further measures to stem its import, cushioning the domestic price.

 

YOUR STRATEGY

– Investors with only a small strategic exposure to gold can continue to hold on to it.

– Those with a high exposure to the yellow metal should use any rally as an opportunity to book profit.

 

4. REAL ESTATE

 

THE IMPACT

INTEREST RATE: The biggest casualty of rupee volatility is the expected rate increase by the RBI. This may reduce the demand and holding power of builders. So, it’s a negative as far as the real estate prices are concerned.

 

NRI: These are the major consumers of Indian real estate and rupee depreciation makes it more affordable for them. This may raise realty demand.

 

INFLATION: Since the material costs go up, along with the inflation, it may put an upward pressure on real estate prices as well.
YOUR STRATEGY: Real estate is already overvalued and, therefore, it makes sense to book profit on your investments (other than your primary residence).

 

CONCLUSION

Assuming there is a decline in the prices of oil and other commodities, the Indian investors might still not benefit as the rupee depreciation could negate the price reduction. The depreciating rupee could pressurise the domestic inflation situation. As India is an import intensive country, the domestic costs will rise on account of rupee depreciation mainly due to fuel prices and its spiralling effects.

Exchange rates definitely have an impact on our lives and they cannot be ignored. Most people may say that it does not affect me, but as can be seen from the blog above, it surely does. If you can note the above impacts and trends and understand the strategies suggested, you would be better prepared to face the effects of a falling rupee on your personal finances.

 

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Being Truly there for your Sister!

Rakshabandhan is an auspicious day in India. The festival signifies love and affection between brothers and sisters. It is a time where brothers reaffirm their duty to protect and care for their sisters during their entire life.

Usually brothers gift cash and or gifts to their sisters as a sign of their love. But what if you could give them something that will truly be there in their life? A sound piece of contribution could end being a much more significant gesture in the long run, both personally as well as her financial future.

Sounds to good to be true? Well here are some options you can consider:

Systematic Investment Plan (SIP) Investments: An easy option, but not not many know it can be gifted or that it can be started with an amount as low as Rs 500 per month. Also, one can not only do SIPs into mutual funds (either equity or debt) but certain blue chip equity stocks as well. So forget those fancy gifts for once and gift your sister that will truly be there for her in the future

Systematic Withdrawal Plans (SWP): A rather new feature in the Indian Mutual Fund environment. Certain AMCs now allow you to initiate an SWP, which essentially is the opposite of SIP such that money flows from the mutual fund to your bank account at pre – specified periods and at specific amounts; but with the added benefit that you can chose your relatives to be the beneficiary of this inflow rather than yourself. Another benefit of such a SWP is that because this inflow would be considered a gift in the hands of your relative, there is no tax applicable to the receiver of this SWP. Perfect way to support your sister with cash flow needs!

Insurance Cover: Few things may convey that you truly care for your sister’s health than an adequate health insurance cover. Now more than ever, health insurance is the need of the hour with parallel rise in not only health costs but also increase in reports of lifestyle diseases and ailments. A health insurance cover will insure that your sister is never financially affected by these hurdles.

On the other hand, providing a term cover for your sister who may have her own financial dependants is a warm way of showing that you are there to share her responsibilities

Estate Planning: This almost always is a personal and complicated topic. But having a solid estate plan is as important as any other life decision. And as a brother you could be the trusted guide to helping her make this important decision.

Furthermore, you yourself can be a part of Estate Planning as a potential guardian to her underage children. Or possibly a trustee in case she needs to make a trust. Ensuring one’s hard earned assets are bequeathed as they intended to is a huge responsibility and who better than a brother to take this up

Gold: The yellow metal will protect her from any economic crisis and will act as hedge during volatile times.But not the cumbersome physical gold that comes with its own headaches and costs. Rather you should consider paper gold i.e. instruments that invest into gold themselves or track their prices. These instruments range from Gold ETFs to the Sovereign Gold Bonds

On this day brothers take a pledge to protect and take care of their sisters under all circumstances. We at Plan Ahead Wealth Advisors understand the enormity of this pledge. And through our experience of understanding the complexities of money and human emotions, we also pledge to help you ensure that your sister stays financially secure in her lifetime.

 

 

 

 

 

 

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Rising Importance of Index Strategies

According to SPIVA India Year End Report 2017, S&P BSE 100 climbed 33.3% whilst S&P BSE MidCap rose by 49.9% for the calendar year 2017. Stellar returns! Question is, did your actively managed mutual fund do the same? As per the SPIVA report, 59.38% of large cap funds under performed their benchmark, whereas 72.09% of mid/small cap funds under performed their benchmarks.

We have started to notice a trend in Indian Equities where the actively managed funds are in the nascent stages of showing continuous under performance viz a viz their respective benchmarks. Even with a three-year time line, 53% of large cap funds have under performed whilst a whopping 80% of mid/small cap funds have under performed their benchmarks!

These data points certainly raise the question of whether passive managed investment strategies should be seriously considered now. Are funds and ETFs which passively just track a particular index the next big thing?

Two major reasons to consider a passive investment option into equity are

1. Returns especially over long investment horizons and for those who wish to nullify fund manager bias; and
2. Lower Costs

As you may notice, Index Funds/ETF’s can provide sufficient returns over long terms, though they are yet not on the same level as the top performing actively managed equity funds.

This is where passive managed strategies truly out do actively managed funds i.e. significantly lower costs.

Besides the above mentioned points, passively managed investments also provide added benefits such as (1) reducing fund manager bias, (2) a diversification strategy that can allow for less volatility, (3) passive funds are more favourable treated from a tax perspective when compared debt instruments.

One recent event that puts passive funds in a more positive light is the recent SEBI notification and the mutual fund recategorization. Due to the clear-cut guidelines for large cap funds i.e. can only invest into stock 1-100 as per market cap, it is likely that fund managers will find it increasingly difficult to generate favourable alpha considering the high costs associated with these funds. Therefore index funds that capture the Sensex or Nifty may find significant favor moving forward as an alternate to large cap funds.

However, they are certain limitations to Index Funds/ETFs in India, such as:

1. Fewer options: They are not a ton of options available for the investor in the Index Funds/ETF space. Therefore one requires to do thorough research before choosing which instrument to select.
2. Onus still on Active Managed Funds: The top quartile of actively managed equity funds, which also have most of the assets under management, continue to currently outperform their respective indices in certain time horizons, despite their higher costs. And this trend will not vanish over night.
3. Inefficient Markets: Unlike Western Countries, where efficient markets negate the need for active management, the Indian Equity Market is still somewhat far from that state. Hence opportunities continue to remain which can be exploited by experienced fund managers/investors.
4. Liquidity and Tracking Error: For ETFs, liquidity has been a major concern. Retail investors are often forced to hold onto their investments even when they would wish to redeem the same.

Furthermore, how well the fund/ETF tracks the relative index needs to be assessed. A lower tracking error would justify the inclusion of that instrument into your portfolio.

What should you do?

At Plan Ahead Wealth Advisors, we feel as an investor it is crucial to introduce passively managed instruments into your portfolio at this juncture. While the debate of active v/s passive will go on, it feels certain to us that a blend of strategies is the need of the hour. What instruments you choose and the allocation of them in your portfolio depends on your risk profile as well as your investment objectives and return expectations.

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Is NPS worth investing, now that withdrawal rules are relaxed for NPS

National Pension Scheme (NPS) which is a defined contributory savings scheme was introduced by the government with an intention to provide retirement solutions for Indian citizens.

Under the NPS there are two types of accounts – Tier I (pension account) and Tier II (investment account).

• Tier I is the a mandatory account which allows limited withdrawal options until the person reaches the age of 60.
• Tier II which is a voluntary savings/investment account is more flexible and allows the subscribers to withdraw as and when they wish without any restrictions.

In Jan 2018, the PFRDA (NPS regulator) relaxed the withdrawal norms and allowed the subscribers to withdraw up to 25% of the balance after the completion of 3 years. The purpose of withdrawal included treatment of specified illness of a family member, education of children, wedding expenses of children and purchase or construction of house.

Partial withdrawals – some more options now

The PFRDA has recently added two more events under which partial withdrawal from the NPS can be made before retirement. They are as follows:

• Partial withdrawal towards meeting the expenses pertaining to employee’s self- development/ skill development/ re- skillingwill be allowed. This includes gaining higher education or professional qualification for which the employee might require in and out of India. However, if such activities on request of the employee are sponsored by the employer then these will not be considered as a class for withdrawal as in such cases the employer bears all the expenses.
• Partial withdrawal towards meeting the expenses for the establishment of own venture or a start upshall be permitted. However, if an employer-employee relationship exists, then in that case the partial withdrawal will not be applicable.

There are certain limitations to the partial withdrawal clause which remain unchanged:

• The subscriber should have been a member of NPS for a period of at least 3 years from the date of joining.

• The subscriber shall be permitted to withdraw accumulations not exceeding 25% of the contributions made by him or her, standing in his/her credit in his or her individual pension account as on the date of application from the withdrawal without considering any returns thereon.

For instance, if you have Rs. 2 lakhs in your account out of which Rs 1 lakh was contributed by you and Rs 1 Lakh was contributed by your employer, then you will be able to withdraw only Rs. 25000 or 25% of your contributions.

• The frequency of total partial withdrawals shall remain unchanged i.e. the subscriber shall be allowed to withdraw a maximum of 3 times throughout the entire tenure of the subscription of the NPS. For the withdrawal, the subscriber must make a request to the central record keeping agency or the Nodal office.

Adding equities to your retirement corpus

In addition to adding more withdrawal options, there have also been increases in the allowed equity percentage to the retirement corpus. The percentage of equity assets that a subscriber can choose under active choice have been increased. The percentage of equity assets allowed has been increased to 75% from 50% (applicable for non government employees).

All in all the PFRDA is trying to make the NPS more attractive as a retirement solution. Depending on your age, time horizon, risk profile and current retirement corpus investments, the NPS could still prove as one of the avenues that you could consider using for building a retirement corpus.

 

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How to utilise that Annual Bonus

Anxious times lie ahead for employees across India as the season for the annual bonus starts in full swing. People often consider bonuses as “money found” rather than “money gained” and therefore almost always consider using these pots of income for discretionary expenses such as gadgets and treats and vacations. While there’s nothing wrong in indulging oneself, it is also equally important to have the big financial picture in mind.

And whilst the list of to-do items can be endless, we at Plan Ahead Wealth Advisors have distilled that list into a few essential options.

1. Payoff those Debts: As crucial as it can get, reducing those crushing debts can go a long way to ensuring long term financial happiness. With that thought in mind, one should ideally those pay the ballooning credit card and personal loans which have very high interest cost. This could be followed by any car or educational loans, though do remember that an educational Loan has certain tax benefits. If nothing else, prepaying your home loan should also be considered though the pros and cons of prepaying the loan might be best arrived at after consulting with a registered investment advisor.

2. Replenish Emergency Funds: Keeping funds aside for unforeseen events is a handy tool. And ensuring that tool is always at optimal levels is critical. Therefore, if you had dipped in those funds previously, the bonus is a good opportunity to return them to their originally intended levels. Ideally, anywhere between 3-6 months of expenses, including any EMI or insurance premiums, should be available in such funds.

3. Revisit your Insurance Needs: Speaking of insurance premiums, it is common knowledge that with age, insurance requirements change. Chances are high that as you age, your health insurance premium might be bumped up or that you realize that your life cover is inadequate and needs an increase. Using your bonus for such needs is a prudent way to utilize the same.

4. Pay attention to your unfunded Financial Goals: There may be certain milestones that may not have been attended to by you earlier. Some may be upcoming in the next year, while others could be years away. Earning a bonus is always a great time to re look at those goals and use the bonus to bridge any gaps that may be there to fund such items. This could also be, but not limited to, ensuring adequate investments into tax saving instruments as appropriate.

5. Invest in yourself: They say the biggest asset anyone can have is himself/herself. Therefore, using the bonus to upgrade your skills/knowledge can be a rewarding decision for the future either by increasing your prospects for that next big professional leap or even increasing your earning capabilities.

While the above are some of the “to-do” items with bonuses, there are also certain “do nots” that one should look out for, such as:

1. Although quite common, never over spend beforehand, especially with credit cards, with the assumption that you will receive adequate bonuses in time to cover for the same.

2. Money in savings accounts usually vanishes quicker than one expects. So, don’t wait too long on deciding what to do with that bonus. You may find out that by the time you decide what to do with it, it has already been spent somewhere unknowingly.

Bonuses are the result of your hard work throughout the year, so ensuring that your bonus works as hard as you have, can go a long way to a financially secure future. By considering the items listed above, you are more likely to arrive at the right choice of what to do with your bonus. And if you are still confused, it is always advisable to bring on board professional advice to ensure that you are on the correct path.

 

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Your money matters – Simple steps to take charge of your money matters

In today’s world, women are equal to men in most ways. Women have achieved high accolades and are doing very well in modern Indian, sometimes even better than their male counterparts!

However, when it comes to financial planning for their family, most times they take the back seat, leaving the details for the husband to handle. Financial planners are unanimous in saying that when it comes to making investment decisions, women rarely take an initiative. A study commissioned by DSP BlackRock Investment Managers Pvt. Ltd and conducted by global research agency Nielsen across 14 cities in India in July 2013, found that only 23% of working women make their own investment decisions.The reason often is that the complexity of products and the mathematics involved in financial planning makes it seem puzzling.

However, women should take control of their finances. Here’s what the empowered women should do when it comes to financial planning for herself and her family.

Create Self Awareness and Get Involved:The first step would be to involve oneself and start discussing these aspects actively with family. Women face different changes in life which affects their finances – be it marriage, child birth, divorce or death of spouse. If you are a single mother, the financial responsibility of raising a child needs to be planned. If you are just married, understanding the outlook of the spouse and jointly planning the future finances should be a top priority. Therefore, it is important to increase the financial awareness when all is well and to be prepared for adversities. Things to do:

• Read articles / blogs / personal finance books
• Discussing and take active interest along with spouse
• Take the help of a financial planner or advisor
• Attending personal finance sessions

Take advantage of various incentives provided for women:Both the private and public sector institutions provide financial incentives for women, most of which go under the radar. (1) Banks offer customized savings accounts with cash backs and rewards for women who spend using bank’s debit card on shopping, food, etc. Some banks also offer discounts on medical tests required by women like thyroid tests, etc. To save for their kid’s education, mothers can open a ‘Junior/Kid Account’ with the waiver of monthly account balance requirement if it is linked to a Recurring Deposit (RD) Account or a Systematic Investment Plan (SIP). (2) While buying an insurance policy, women receive a benefit on the premium paid as compared to their male counterparts. Traditionally, women pay less premium than men for the same sum insured when it comes to buying a life insurance policy. (3) Many banks offer lower interest rates on home loans if a woman is applying for it or if she is the first applicant for a joint loan. The same goes for car loans too. (4) Some state governments provide certain exemptions with respect to stamp duty and transfer duty in case of sale deeds, conveyance deeds and gift deeds if the property is in the name of a woman.

• Learn and know the available benefits available for women when buying products / availing loans

Cover Risk and Contingency:All the planning you do could be ruined in case of any emergency. Therefore, contingency planning comes before any investment planning. Such contingencies could be risk to life, health, hospitalisation or any unforseen emergency which may require her to step in financially. If you are a working couple or a single earning member family with a loan, having adequate life insurance ensures that dependants will not have to compromise on their finances in the income earner’s In regards to health, various medical research reports say that women live longer and may have more health issues compared to men. Therefore the need for health cover for women.

• Have a contingency fund for your family
• Understand and create enough life cover and health coverfor spouse and you

 Plan for Retirement/ Sabbaticals: For you, retirement can either mean retiring at the end of your working age, usually 60; or when you have children and decide to not work anymore. Various studies show that as women usually live much longer than men, therefore they may outlive their spouses. So, in order to have a secure retirement, it is essential to plan for it well in advance. Factors such as inflation, lifestyle, providing for dependants need to be synced together efficiently.

• Understand the funds that you may need in retirement (with spouse and without spouse) and invest towards it
• In case of sabbatical / pause in work, understand the income loss you may face from such a decision and work towards providing a buffer for it

 Investing: While women are known to be great savers, saving in itself becomes futile if savings are not deployed to grow. Women need to get involved in such aspects and contribute actively. Working women should also understand these nuances rather than letting the husband or father decide about her money and investments.

• Involve yourself in investment decisions, slowly and steadily, to grow confidence and understanding of the subject

 Legacy Planning:– In case of wills, the voice for women to register their own wills is growing louder. Now, more than ever, women have assets in their names which if left without proper will/nominations, can inadvertently end up in the hands of a person for whom the asset was not envisaged. Women may also inherit their parents’ assets. Even in the case of the husband’s will, the wife needs to be informed of the existence and details of such a w Dealing with the loss of a loved one is challenging but can become easy if there is awareness and the lady of the family is prepared and informed.

• Understand and be part of the will making process

 

From the above, you would have gathered how important it is for women to get started on money awareness. Getting women to manage money requires a mindset shift and the above steps, we hope, will give you some pointers on how to start managing your money matters. After all it is your money and it matters.

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Financial Wellness – Is it Important

The traditional thoughts on wellness usually revolves around health and nutrition. However, in our current lifestyle, achieving a good health and having decent nutrition involves regular check ups and having healthy eating habits; which may be kind of difficult if we are stressed about our money. If you ask a group of working people who are having difficulties sleeping at night the reason for this, chances are high that a good number of them will cite financial stress as the cause. The impact of such stress is not unknown to us, with impact on health and loss of productivity just two of the effects.

Here are just a few reasons why Financial Wellness should be giving due consideration in today’s time:

Financial Concerns can be a major source of stress

According to the 2017 PWC Employee Wellness Survey (a survey done for employees in the United States), more than Fifty Percent of the employees surveyed are facing some sort of financial stress.

The Global Benefits Attitudes Survey conducted by Willis Tower Watson further showed that Fifty Three Percent of Indian Employee respondents claimed to have some sort of financial worry i.e. either long or short term, or maybe even both. Furthermore Seventy Three Percent of these respondents claimed that these worries have caused them above average stress. Following is a chart depicting the data collected by the Willis Tower Watson survey:

One in two survey participants have some kind of financial worry!

It can be a major reason for loss of productivity

According to the PWC survey, distractions due to financial stress is a real thing and it can lead to wastage of working hours. The survey indicated that on average, financially stressed people spend up to 3 working hours per week on dealing with financial matters and they are also twice as likely to miss work due to personal financial matters

Improves Physical Well being

The American Psychological Association’s 2016 Stress in America report stated that Sixty Seven Percent of those surveyed revealed that money was a form of stress. And that rise in stress can lead to stress related health concerns.

While these are certain aspects that may be more applicable to an employee, employers should also look at this as a prime employee engagement tool for the following reasons:

Financial Planning take Time

As mentioned above, the stress caused by financial worries forces employees to bring these to the work place. As such they devote working hours to such matters and also altogether take leaves to attend to various financial concerns/emergencies. This only increases the burden of the employer ultimately.

Increases Employee Productivity and builds Loyalty

We have already read how financial worries leads to a loss of productivity in the office. An efficient manner in which employers can counter such trends is to increase financial awareness among its employees. Thus not only will employees worry less and reduce work hours wastage, they are also more likely to use their well deserved breaks better and therefore not be absent from work. Providing financial wellness initiatives can make them confident of planning better for major events like Retirement. This ultimately leads to trust between the organization and its employees, a great source of encouragement for all employers. 

Employees want Support and improve their Financial Literacy

Financially burdened employees would like their employers to help them in achieving wellness. Employees who stress from money issues are looking for help to improve their financial situation.

Financial Well Being is steadily gaining acceptance as an important factor of consideration for one’s overall well being. As such it it becomes critical for an individual to ensure that his/her’s financial situation does not lead to issues that has negative impacts on different aspects of life. And as an employer, Financial Wellness initiatives can be a source of efficient employee engagement and possible retention strategy.

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A Guide to Financial Planning for HR Consultancy Owners with Uncertain Cash Flows

I have uncertain inflows – how should I invest?

Money may not be the end in itself, but for most, it is a means to achieve many necessities as well as aspirations. Therefore it becomes important how an individual plans to use his/her hard earned money. More so when the inflows are not necessarily streamlined and consistent like that of an employee. When your personal income is linked to the performance of your firm, a well thought out plan could be all the difference between financial stability or having to make huge compromises.

Being a HR firm owner can have its ups and downs. By following certain simple financial planning steps, you can have some peace of mind with regards to your personal financial situation even though you may not have a steady income:

1. Contingency Fund: This is a basic yet most critical part of any financial planning for a self employed individual. You never know when your next pay check may come. So it pays to prepare for the worst. Thumb rule has always been 3-6 months worth of household expenses to be kept aside in highly liquid assets as an Emergency Fund. Yet we feel that when it comes to a owner/manager, it should be at least 6-9 months worth of basic expenses!  A handy tip, do not forget to count any committed payments such as EMIs and any insurance premiums when calculating the corpus. 

2. Risk Planning: or in lay man terms, Insurance Planning. This could be a considered an extension of contingency planning, but for very specific events. Following are the types of insurance policies one must always have at all times: 

• Term Life Insurance Plan: The plain vanilla term plan is exactly the only kind of life insurance anyone should purchase. Handy tip, to know the amount of cover you might need, start with at least 15 times your annual revenue/income. Don’t forget, insurance should never be mistaken for an investment!

• Individual Health Insurance: If nothing else, an individual health cover to at least cover your own standard hospitalization expenses is a must. Financial independence means you should be able to fend for yourself at the very least, even if it paying for your own recovery. 

• Critical Illness Policy: Contracting a serious illness or undergoing a major surgery would mean a drag on your finances as well as a dent on income. Such financial risks can be mitigated by procuring a critical illness policy. Such policies usually provide for a lump sum payment to tide over the finances needed, in case of being diagnosed with a critical illness.

• Personal Accident Policy: Another source of financial risk associated with most professionals is loss of income/job due to an accident. Similar to a Critical Illness Policy, this policy provides a supplement alternative income for certain weeks of disability depending on the terms of the policy. This can be used to either pay off medical expenses or help in taking care of household expenses during the recovery period.

While more types of insurances are available, it is essential that this set is acquired first. Having your Contingency funds and Risk Planning in place makes a strong base for you to venture into the world of investments.

3. Planning for Retirement: Retirement, or as financial advisors put it, Financial Freedom, is something we all aspire for. The dream of not working for the sake of survival is a goal we all work towards. Yet having an uncertain income can make such a dream feel a little distant more often than not. And while retirement always seem likes a far off goal in comparison to what seem like more pressing concerns, it should ALWAYS be top priority! Underestimating your retirement financial needs can be the one of the biggest mistakes you could make and more often than not, people realize it far too late to make any significant course corrections. Even if you have to start with small amounts, it is the consistency and discipline that will ultimately help you reach your goal.

4. Financial Goal Planning: Only after the first three steps are in place, is when you should really consider planning for the rest of the commitments/aspirations that you might have. As with any goal planning, the two critical aspects to consider are time horizon and future value of the goal, not current value. If you get these two right, the rest becomes clear.

For any individual with uncertain income flows, planning can become easier if you can channelize your savings, prioritizing in the above order! It is essentially in this area where the difference between financial planning for an owner of a firm/business versus that for an employed individual lies.

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Along expected lines.. No surprises is good news

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%.

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.

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