Things were much simpler for the previous generation. There were a handful of products in the market – namely Fixed Deposits, Small Savings schemes or PPF, and these provided higher returns at a lower risk. Insurance was issued by government backed Life Insurance Corporation of India. Medical insurance was unheard of and Equity markets were not understood or accessed by most. People generally had fewer aspirations they lived within their means, and hence could manage to save more.
Things have changed considerably since then. Today, aspirations of individuals are high. The financial markets have matured and are offering a variety of investment options. Investing money has hence become a lot more complicated now, than ever before. Inspite of technology, people have become busy and can neither devote time nor do they have the inclination and knowledge about various investment options that they can consider.
Considering today’s changed circumstances, a good financial intermediary will help you select right financial product for your needs.
When it comes to management of personal finances, a trustworthy and knowledgeable intermediary is what you will need to look out for, along with their experience, skill set and expertise in financial products. Since good quality financial intermediaries are hard to come by, it would be wise to broaden the search beyond where you live.
With the wide array of communication tools and technology available today, one can have audio or video conversations with an intermediary in any location.
We are able to offer the same experience through remote meetings, as one would expect in a personal meeting and that is why, most of our clients opt for virtual meetings.
If you think the ups and downs of the stock market make you uneasy, how would you feel if you knew that your real return could be negative in a fixed deposit?
For example, if you are earning 6% on your bank fixed deposit, but if inflation is at 7%, effectively, you are losing value of 1% of your principal each year.
Your purchasing power erodes year, after year, after year as your assets do not exceed inflation and taxes. In life, as well as in finances, at times one needs to step outside their comfort zone, in order to move closer to your goals.
For many years, the rule of thumb used to be, that you should subtract your age from 100 - and that's the percentage of your portfolio that you should keep in equity. For example, if your age is 30 years, you should keep 70% of your portfolio in equity. If your age is 70 years, you should keep 30% of your portfolio in equity.
However, it is advisable to combine the above rule, with proper assessment of an individual’s risk appetite, investment goals & time horizon to decide appropriate asset allocation between equity and fixed income options.
The Rule of 72 states that you can divide the number 72 by the actual or assumed yield or rate of interest, to see how long it would take your investment to double. For instance, if your fixed deposit earns an annual interest of 8%, it will take 9 years for your money to double (72/8).
Emergencies (such as loss of income, medical emergency, loss of assets, etc.) are contingent in nature and therefore, it is advisable to put away a portion of one's savings to counter these emergencies when they arise.
One should hold monthly living expenses of a minimum of 6 months in a contingency fund – that includes everything from monthly household expenses, to EMI payments, or any other expenses you may incur during the course of a regular month.
According to the 'Income Rule', one should have a sum assured of 8 to 10 times of one's annual income. This thumb rule gives a good starting point for a bread-winner to know the amount one should be insured for in case of any unfortunate event.
However, it is a prudent practice to calculate the amount of insurance required. One should use the "Human Life Value" principle, which takes into account the financial goals and outstanding liabilities, to arrive at the amount of insurance cover required.
The value of the house you purchase can be as high as 4 to 5 times your annual income, but no higher, assuming you have no other loans and a low interest rate environment.
Big assets like a house cannot be purchased without either depleting all your savings or signing up for a loan.
Ideally, an EMI towards home loan should not be more than 30% to 40% of one’s gross monthly income. The total cash outflows towards all EMI’s put together, should not be more than 36% of gross monthly income.
It's a no brainer, paying off the retiring the highest-interest credit card dues first, regardless of size, helps minimize the amount of interest you pay over time.
It is always advisable to repay the outstanding dues in full every time your credit card bill arrives and always spend within means. Don't just honour the minimum payment highlighted in your credit card statement, instead pay the entire sum, or to the most extent possible to avoid high interest burden levied by credit card companies
Assuming that the age of your child is 5 years, and you need Rs. 50 lakhs to fund his / her higher education at 20 years, you would need to invest Rs. 10,000 per month for 15 years, in a basket of schemes with an assumed rate of 12% annualized return. When your child reaches 20 years of age, due to the power of compounding, you could accumulate a corpus of Rs. 50 lakhs.
Considering an average inflation rate of 8 to 9% per year in healthcare cost in recent years, a treatment costing Rs. 2.5 lakhs today may cost close to Rs. 20 lakhs after 25 years. At a higher age, the probabilities of requiring medical treatment is also higher. With increase in lifespan, risk of lifestyle diseases increases and it becomes difficult to purchase a health policy at a later age, as it may be difficult to meet insurance companies eligibility criteria.
A good basic Mediclaim policy with a super top up plan to take care of any medical emergency should be taken as early as possible and must be part of your financial plan.
Ideally, withdrawal from retirement corpus should be as low as possible. Due to longer life spans, reducing interest rate and societal shift towards nuclear families, means that your retirement money needs to last longer. Considering post retirement period of more than 30 years, the odds of success are highly dependent on your annual withdrawal rate, which needs to be decided based on your expenses, inflation and interest rates.
If you own a property, are married, or have a dependent, then the answer is yes. A Will is a legal document that sets forth your wishes and desires in writing and ensures proper wealth distribution without any hassles, disputes or heartburns amongst your family members, in your absence.
Here are some of the points that must be considered while evaluating the need for a Will:
India, being a developing economy, offers attractive investment options for NRI’s, namely insurance products, fixed deposits with bank &corporates, stocks and mutual funds.
However, it is advisable to choose a product which offers better return after adjusting tax liability, currency fluctuation and ease of repatriation. You can invest remotely depending on Indian norms applicable to your country of residence. Your financial intermediary can provide necessary guidance.