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Posts Tagged ‘#Life’

bonus 4

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.
  1. 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.
  1. 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.
  1. 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.
  1. 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.
  1. 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

1In 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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Ulips

 

Unlike a pure insurance policy, a Unit Linked Insurance Plan (ULIP) is a product designed to give investors the benefits of both insurance and investment under a single integrated plan. ULIPs are insurance + investment plans suited for investors with long investment horizons. They work well with investors who may not otherwise keep the discipline of investing as they usually come with long lock ins and high exit costs.

The tempting benefit ULIPs offer is the administrative convenience of not needing to execute the two legs of transactions i.e. insurance and investments separately.

From our experience with investors, we understand that there’s a good chance you already own a Unit Linked insurance plan (ULIP) that either your parents bought for you, or you landed up buying one in the hurry scurry of tax related investments, only to realize later that one should not be mixing insurance and investments.

In the case that you may have purchased a ULIP or you may be contemplating to buy one, it is critical to know a few important items related to them so that you are more aware of what you have or might get yourself into.

 

1. Understand the purpose for purchasing the ULIP – tax planning cannot be the sole motive

While tax planning is clearly on the agenda, you should also assess the objective for which you want to purchase an insurance policy. Is the policy being bought for long term wealth creation, retirement planning or building a corpus for your child’s future? A decision that is prompted solely by the need to save taxes often results in the purchase of a wrong or an unsuitable product.

 

2. Check the charges carefully

All Ulips come with a host of charges. Understanding each of them is crucial to understanding if the product is suitable or not. Such charges include:

  • Premium Allocation Charges: As the name suggests, these fees are to cover expenses incurred by the company to allocate funds, do the underwriting, medical expenses, etc.Your agents commission is also covered under this head.
  • Policy Administrative Charges: These are the charges that are deducted on a timely basis to recover the expenses incurred to maintain the policies under the fund.
  • Surrender Charges: Similar to the exit loadin a mutual fund, these are the charges applicable when encashing a part or the full investment in a plan. As we know that in most of the Mutual Funds, exit load is at about one percent. In ULIPs, surrender charges could vary from a few percentage points to very exhorbitant amounts, basically to deter investors from exiting the plan in a short horizon.
  • Mortality Charges: These are the fees that are deducted on a monthly basis to cover the costs borne by the insurerfor providing a life cover to the policy holder. Depending on the age and the sum insured, these charges are deducted for life cover.
  • Fund Management Charges: The allocation of investment in debt and equity requires the insurer to bear the costs of managing the fund.These are charged as fund management charges.
  • Fund Switching Charges: As the name suggests, switching from one fund to another requires the insuredto pay an amount for covering the expenses borne by the company for making the switch.

 

3. Understand the flexibility to Switch

An investor’s need for liquidity, time horizon, and risk appetite will determine the initial allocation but these change over time. ULIPs offer the flexibility of switching between the funds based on changes in market cycles and changes in investor preferences. The number of free switches during a policy year, the cost of switches and the ease of switching are factors that are important evaluation points when choosing a ULIP.

 

4. Analyse and estimatperformance

With the complexity of the ULIP structure plus the huge list of charges and expenses that comes with it, it is difficult to approximate the kind of performance the product may have given during its existence. Always insist with the insurance agent/advisor to show illustrations and data demonstrating how the fund would has performed and is likely perform considering markets ups and downs. More often that not, data would help you decide better on the decision to invest or not.

 

Probably the only benefit, though largely accidental, of an ULIP is that the investor’s money is locked in due to the structure of a ULIP, forcing him to think long term. However, it is needless to say that other options must also be evaluated in comparison to ULIPs before making a choice to invest in them. The most common strategy might be a combination of Pure Term Life insurance policies along with separate investments in Mutual Funds. But like every investment decision, the first step to take is to determine the investment horizon and risk appetite and not get swayed by fancy words or past performance.

 

 

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