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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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blog 2With the recent launch of the ICICI Bharat 22 ETF, a lot of buzz around Exchange Traded Funds or ETF’s has been doing the rounds. Most investors may be wondering whether it is worth investing in ETF’s?

So what is an Exchange Traded Fund?

An ETF is a passive investment instrument whose value is based on a particular index and such a scheme mirrors the index and invests in securities in the same proportion as the underlying index. For example, a Nifty ETF will invest in the 50 stocks compromising the Nifty index. ETF’s are freely marketable securities which are traded on the stock exchange.

Since ETF’s trade on the exchange, their value fluctuates all the time during the market trading hours. This is different from the working of a mutual fund scheme which has a single Net Asset Value (NAV) per day that is determined after the trading hours are over.

Theoretically, ETF’s are structured to provide a variety of advantages to investors. The most prominent among them are as follows:

  • Diversification: ETF’s can provide a variety of diversification based on following themes:
  1. Asset classes such as equities, gold, fixed income
  2. Sectors such as financial services, consumption, infrastructure
  3. Based on market cap i.e. large, mid and small cap
  • Low Cost: One of the biggest attraction of ETF’s has been it’s very low cost structure, especially in comparison to Indian mutual funds. The low costs is primarily due to the fact that an ETF is a passive investment i.e. there is no active intervention in stock selection, re balancing based on a certain view. Therefore the costs associated with hiring professionals and the required infrastructure is avoided, resulting in a significantly cheaper product. Furthermore, most ETF’s have kept the expense ratios low to induce significant inflows from institutional investors. Following are examples of some commonly known ETF’s and their respective Expense Ratios
ETF Expense Ratio
CPSE ETF 0.07%
Motilat Oswal MOSt Shares M100 ETF 1.50%
Kotak Banking ETF 0.20%
ICICI Prudential Nifty iWIN ETF Fund 0.05%
SBI – ETF Nifty 50 0.07%
Average 0.38%

(Source: Value Research, mutual fund websites)

  • Suited to Efficient Markets: it is a global observation that passively managed funds have performed significantly better over actively managed funds where markets are more efficient. This is because in developed markets, all related information that should be priced into the equity market already happens, leaving very little space for the fund managers to beat their respective benchmarks.
  • Reduced Risks: Due to its passive structure, the risk arising due to stock selections by a fund manager are reduced. Furthermore, as an ETF comprises the same stocks in the same allocation as in the underlying index, tracking error is significantly reduced to the point of it being almost negligible. Tracking Error is the standard deviation between the returns of the fund and the underlying index. A lower tracking error indicates the fund is that the ETF will mirror the index more closely and therefore its performance will be more consistent with the same index.

Despite many advantages that ETF’s can bring to the table, in India they so far have been primarily avoided for the following reasons:

  • Liquidity: One of the major disadvantages plaguing ETF’s currently is liquidity. As ETF’s are traded on the exchange like any stock, its not always you will have to opportunity to either buy or sell at the desired quantity or price, depending on the type of ETF involved. However an alternative to this problem is the use of a market maker. A market maker is appointed by fund houses. They, on behalf of fund houses, provide quotes for buying or selling an ETF based on the current NAV of that ETF. This helps ensure liquidity for investors. Any investor can approach a market maker for transaction. The difference in their quote and the NAV of the ETF is called “spread”, is the cost for the services. –
  • Lack of awareness: Distributors receive negligible commission for recommending and executing an investment into an ETF. Because of these low margins not much efforts have gone into promoting ETF’s. Thus, most investors are unaware of what an ETF is and how it can add value to their portfolio.
  • Relative Underperformance over long term: While in theory ETF’s should out perform active managed funds in an efficient market, the point to note is that India is still some time from achieving that status. Hence actively managed equity funds, especially in the top quartile, are able to beat the underlying index, and ETF’s over long term horizons. This currently results in alpha creation which ETF’s may take time to match up to. The following table is a comparison between a random mix of actively managed equity funds and equity oriented ETF’s:
  1yr 3yr 5yr 10yr
Aditya Birla Sun Life Frontline Equity 26.62 10.21 16.89 10.61
Franklin Templeton Franklin India Prima Plus 24.86 11.17 18.22 10.87
HDFC Top 200 28.42 8.39 14.99 10.65
IDFC Premier Equity 30.35 11.72 18.68 14.08
ICICI Prudential Nifty 100 iWIN ETF 27.54 8.44    
Kotak Sensex ETF 23.88 5.36 10.7  
Reliance ETF Nifty BeES 26.78 6.7 11.91 5.75
S&P BSE Sensex 25.58 5.01 11.15 5.14
NSE Nifty 100 26.97 7.55 12.71 6.08
source: value express , date (07 Dec 17), returns data CAGR        

As in the Indian economy continues its march towards being recognized as a developed nation, there is fair certainty that ETF’s will have a far larger role to play. However in current scenarios, practical hurdles continue to keep them out of favor among investors. We believe that assigning a small allocation towards ETF’s, after due diligence, is sufficient basis investor’s risk appetite and investment horizon. As Indian Equity markets evolve, so will the ETF space and this will increase investors interest towards them.

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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.

 

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Over the weekend there was news that RBI Governor Raghuram Rajan’s term is ending on 4th September 2016. The market clearly does not like surprises, and therefore the impact could be short term volatility in currency,equity  and bond markets. Thus, whilst this is clearly a short term impact to India’s image in the international community and financial investors, we believe there is a list of very eligible candidates who can be appointed. In fact, the events over the weekend are likely to get the government to move much faster on finding an approprite replacement, and thus we believer there is no need of changes in your investment portfolio as a result of this. Ultimately, we believe that institutions are typically bigger than their chief executive.

The event which is likely to have a much bigger impact is the probability of Britain moving out of the European Union.  Over the last couple of weeks, there has been significantly higher newsflow around Brexit and the importance of 23rd and 24th June for world markets, due to the Brexit. Let’s understand the possible impacts of Brexit on your personal finances.

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What is Brexit?

The European Union has 28 countries as its members. European policies currently aim to ensure free movement of people, goods, services and capital amongst its member states. Out of these, 19 members use Euro as its currency. Britain which is one of its members is evaluting whether it needs to stay in the EU or exit. That’s why it is termed as Brexit – ‘ Britain Exit’.

Bexit and your investments

There is a possibility of largely two scenarios in the referendum on the Brexit, that is,  either a leave or a stay. Let’s examine the impact of each of these on your investments separately. As indicated, this will be decided on the basis of a referendum which is going to be held on 23 June – a final decision will be taken on the basis of the votes.

Scenario 1– Leave

  • Depreciating Pound and Euro / Strengthening Dollar and Yen– Thus, if you have kids studying in the UK or planning to study there, you couldend up paying lesser.
  • Strengthening Dollar

The US dollar could then be expected to strengthen in the short term as investors will rush to Dollar as a safe investment vehicle. If you have any dollar denominated investments then those will increase in value.

  • Sell off in the emerging markets

In the short term emerging markets including India , as well as UK and European markets, could experience volatility due to flight of capital to safety . However, the expectation is that impact on India will be lesser compared to the other emerging markets due to its realtively stronger fundamentals. Thus, if you have investments in emerging markets then those might see temporary fall in returns. Do not panic and sell. Over the longer term, the performance of your emerging market funds will depend on the economic scenarios of the individual countries to which your fund is exposed to, apart from the temporary brexit effect.

  • Gold could become attractive

Gold is gaining importance as an  investment vehicle with rising global uncertainties. Therefore, Gold Exchange Traded funds, Gold funds and sovereign gold bonds could benefit from this price rise of gold, as well as strength of the US dollar.

Scenario 2- Stay

  • Equity markets could react positively

This will ideally mean increase in the value of your equity investments since world markets could do well, as the overhang of the Brexit has led to signficant market volatility over the last few weeks. A relief rally could follow, especially as multiple other EU countries are also at this point looking to see what the UK does with the Brexit.

  • Bond markets could be stable

If the brexit does not take place there may not be any selloff in the bond markets which means the yields could remain as is. The higher inflation ovehang on domestic bonds is likely to be the driver of bond prices going forward in that case.

  • Euro/Pound sterling could strengthen

There will be increased confidence in European markets and Euro could appreciate. Your Euro denominated investments could do well in this case.

All in all,

Since the outcome is hard to call currently, one may need to track this event carefully, and decide you investment strategy carefully basis the outcome of the referendum. In the short term volatility may be expected to be higher than normal, but do not take panic calls and stick to your asset allocationand overall financial goals and plans.

 

 

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Over the last couple of weeks, there has been singifcantly higher news around Brexit and the importance of 23rd and 24th June for world markets, due to the Brexit. Let’s understand the possible impacts of Brexit on your personal finances.

 Doc3

What is Brexit?

The European Union has 28 countries as its members. European policies currently aim to ensure free movement of people, goods, services and capital amongst its member states. Out of these, 19 members use Euro as its currency. Britain which is one of its members is evaluting whether it needs to stay in the EU or exit. That’s why it is termed as Brexit – ‘ Britain Exit’.

Bexit and your investments

There is a possibility of largely two scenarios in the referendum on the Brexit, that is,  either a leave or a stay. Let’s examine the impact of each of these on your investments separately. As indicated, this will be decided on the basis of a referendum which is going to be held on 23 June – a final decision will be taken on the basis of the votes.

Scenario 1– Leave

  • Depreciating Pound and Euro / Strengthening Dollar and Yen– Thus, if you have kids studying in the UK or planning to study there, you couldend up paying lesser.
  • Strengthening Dollar

The US dollar could then be expected to strengthen in the short term as investors will rush to Dollar as a safe investment vehicle. If you have any dollar denominated investments then those will increase in value.

  • Sell off in the emerging markets

In the short term emerging markets including India , as well as UK and European markets, could experience volatility due to flight of capital to safety . However, the expectation is that impact on India will be lesser compared to the other emerging markets due to its realtively stronger fundamentals. Thus, if you have investments in emerging markets then those might see temporary fall in returns. Do not panic and sell. Over the longer term, the performance of your emerging market funds will depend on the economic scenarios of the individual countries to which your fund is exposed to, apart from the temporary brexit effect.

  • Gold could become attractive

Gold is gaining importance as an  investment vehicle with rising global uncertainties. Therefore, Gold Exchange Traded funds, Gold funds and sovereign gold bonds could benefit from this price rise of gold, as well as strength of the US dollar.

Scenario 2- Stay

  • Equity markets could react positively

This will ideally mean increase in the value of your equity investments since world markets could do well, as the overhang of the Brexit has led to signficant market volatility over the last few weeks. A relief rally could follow, especially as multiple other EU countries are also at this point looking to see what the UK does with the Brexit.

  • Bond markets could be stable

If the brexit does not take place there may not be any selloff in the bond markets which means the yields could remain as is. The higher inflation ovehang on domestic bonds is likely to be the driver of bond prices going forward in that case.

  • Euro/Pound sterling could strengthen

There will be increased confidence in European markets and Euro could appreciate. Your Euro denominated investments could do well in this case.

All in all,

Since the outcome is hard to call currently, one may need to track this event carefully, and decide you investment strategy carefully basis the outcome of the referendum. In the short term volatility may be expected to be higher than normal, but do not take panic calls and stick to your asset allocation and overall financial goals and plans.

 

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We all have multiple goals, which we plan to achieve at different points in our lives but retirement tends to be one of the biggest goals. Unlike other goals, which have limited periods of outflows, for example higher education for children could last for 4-7 years depending upon the choice of course, but in the case of retirement,you chalk out a plan for the rest of your life,possibly for almost 1/4th of your life assuming life expectancy till 80 years and retirement age to be 60 years. This implies that the sooner you start the better it is.

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If you are in your 40s then your kids might be in school and as you move towards the late 40s, your kids will be finishing schooling and you may be nearing you child’s graduation goal. The fact that retirement occurs very late in your life maymean that you tend to keep it aside and start working towards your near term goals like your child’s higher education. This way you will never really find an appropriate time to start saving for your retirement.

If you have not started yet, then start now.

Here is what you can do:

Determine goal value

Determine the current value of your expenses. Calculate the cost you would need in the year of your retirement by applying inflation to it. Estimate the expenses which you will incur post retirement. Remember there will be some difference in those expenses. For instance your household expenses will reduce since your kids will be independent by then. You lifestyle expenses could decrease, your medical expenses could go up, your loans could be totally paid off so you may not have any EMI burden, most insurance policies may have matured, so there will not be any premiums outflow to be planned for. Be reasonable while estimating expenses. Do not go overboard nor be overly conservative.

Investment for your goal

You may find the amount of investment that you need to make this goal achievable, will be greater than what it would have otherwise been had you started earlier. This does not mean you need to go up to 100% equity or riskier assets just to accumulatethe desired corpus in lesser amount of time. The correct approach is to have an asset allocation in place depending upon your risk tolerance and appetite. Take calculated risks. If you are too conservative, it may not serve the purpose because it will keep you from generating inflation beating returns. Being too aggressive on the other hand will also not help because risk of loss will be higher since you are not diversifying across asset classes.

After you have an asset allocation in place, you will need to choose products to invest. Since equity performs well if you stay invested for the long term, you can allocate more towards equity, little less towards debt and some amount in gold for diversification purpose. On the equity side you can look at Equity mutual funds. Go for open ended diversified mutual funds. Avoid closed ended products. Within equity funds you can look at flexi cap funds where it is a mix of large, mid or small cap. If you are in a higher tax bracket and you have not exhausted your 80 C limit you can look at Equity Linked Savings Scheme (ELSS).

As you get older, increase exposure to debt and reduce equity. On the debt side you can look at Public Provident Fund which has a lock-in period of 15 years. Beyond that it is extendable every five years. NRIs cannot open a PPF account. If you already have a PPF and in between your status changes to NRI then you will not be allowed to extend for five years once your PPF matures. The EEE ( Exempt Exempt Exempt) status of PPF makes it an attractive investment option especially in a falling interest scenario like the one we are in right now.If you are employed, look at contributions to the Voluntary Provident Fund ( VPF). You can also look at balanced funds which are a mix of ~65% in equity and rest in fixed income if you want a bit of both.

New Pension Scheme (NPS) is another option which is again a good investment option for retirement since it will provide regular income post your retirement. It will also enable you to take an additional deduction of Rs. 50,000 under section 80CCD 1 B which is over and above the Rs. 1.50 lakh benefit under 80C.

To add gold to your portfolio you can use a Gold ETF or buy Gold bonds.

Remember, we are in a dynamic environment. Therefore your investments will need to be reviewed and rebalanced periodically.

Image credits:      www.arabianbusiness.com            , www.workingmother.com

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“The only real battle in life is between hanging on and letting go.”

― Shannon L.

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This is exactly what you need to ask yourself while reviewing your existing set of investments.

Once you have decided your goals, you need to review your existing investments. This will give you a sense on which is the ones that are not doing well so that they can be replaced. It will also help you understand based on your asset allocation and goals that going forward where you need to invest so that your investments are in line with your goals.

You may be having some investments in stocks, Mutual funds, Real estate, fixed deposits, gold, etc. Or there are even chances that your investments may be concentrated in some of the assets.

Here’s what you can do

Stocks and Mutual Funds

If you have stocks in your portfolio and you understand bit of markets then you can decide based on what is happening in the economy, what are the sectors that are outperforming or under performing at that point in time, the demand environment, the credit environment, etc.  and accordingly decide whether you want to keep it or sell it.

A better way to do this would be by investing through Mutual Funds. There you will benefit from the expertise of the fund manager. It will also save you from micromanaging at security level. With the introduction of direct plans, you can now invest by paying a lesser expense ratio compared to a regular plan. Mutual funds can be used to take exposure in equity, both domestic and international, debt, mix of debt and equity through balanced or Monthly income plans, commodities and index.

Fixed Deposits

If you have Bank or company Fixed Deposits or Post office investments then you need to see the rate that you are getting on your FD and what is the interest rate expectation going forward. If your FD is due to mature shortly and there is expectation that interest rates are going to fall, similar to the current scenario, then either you lock in now at the existing higher rates or when your FD matures you can reinvest it in some other investment instrument depending on your goals. In FDs also there are Bank FDs and Company FDs. Company FDs offer comparatively higher returns but remember to focus on quality

Real estate

It’s not a great idea to lock in 70 to 80% of your wealth in real estate. Real estate has its own cycles of boom and depression. It’s difficult to sell these at the price of your choice. They are certainly not assets which can be sold immediately due to their illiquid nature. Doing so will need you to settle at lower prices. In real estate also there are some pieces which appreciate faster based on demand environment, location, etc. while some of them do not see much appreciation again due to unfavorable location, lack of demand, etc. Therefore, try to sell that piece of your property which is not yielding good returns and channelize your investments in some liquid and appreciating investments.

Gold

Indians have emotional value attached to gold. These days there are options like sovereign gold bonds and Gold ETFs which can fetch you returns both in the form of value appreciation and interest. Going forward you can start this paperless form of investing into gold.

Remember,

Keep the investments which are doing fine and have a good future outlook, and allocate them to your goals. Give up the ones which are loss making and you do not see a scope of recovery any time soon. It’s important to cut losses when required.

Last but not the least, remember why you are investing – don’t miss the forest for the trees.

Image credit: www.fotolia.comfinancialtribune.comwww.colourbox.compondicherryurbanbank.inwww.etastar.com

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