Personal Finance

Financial Mistakes That May Impact You

Friday, May 26 2017, Contributed By: Team NJ Publications

Managing expenses is a tough task if you have not budgeted for it. But what about unknown expenses that hit us out of the blue. At times, even expert investors find it difficult to manage such expenses

Stay On Track: Key To Achieving Your Goals in Life

Friday, May 19 2017,

Stay On Track: Key To Achieving Your Goals in Life

How would you consider your life to be meaningful and successful? I am sure that many would not prefer or will not be able to put a monetary figure here. Success for many of us would mean achieving our dreams in life or helping others achieve their dreams in life. Truth be told, we all have our own dreams in life, like owning a house, our kids foreign education, going on long vacations, comfortable retirement with respect and the likes. The question really is, do we know what exactly are our dreams, how much will they cost and most importantly, whether we are on track to achieve them?

Why Define Goals in life?

Unless you don't define your goals with proper details, you are unlikely to achieve the same. Same is the case with your life dreams. Most of us often invest for our future goals so that we have the money to fulfill them when they arrive. The problem is that most of these investments are generalized, the exact time available for every goal is not known, target amount needed is also unknown and lastly, there is no link between our investments and our goals. How can we be sure that our goals will be achieved if we do not know these important aspects? How can we know if we are on track or there is a gap in our investments? How can we best plan goals to make them feasible and practical? These are important questions needed to be answered.

Enter, your financial advisor or the preciouswealth Wealth Partner. The person who can help you identify and define proper financial needs or goals in life. He/she would also help map /earmark your existing mutual fund investments towards these goals. These are the important activities which will unravel the future plan you will need to adopt to achieve your goals.

How To Track My Financial Goals?

To make your life easier and to help you get organized with your goals and your investments, preciouswealth has brought to you the 'Family Needs Progress Report' on your Client Desk. Firstly, you have to sit with your advisor and do proper estimation and defining work for your goals. Thereafter, the advisor will enter goals and map existing mutual fund investments into the system.

And there you go! you will have your Family Needs Progress Report ready – simple, meaningful and actionable for use! Here is a quick snapshot of what it will look like...

 Family Needs Progress Report

Following is the important information available in the report:

1. List of all your Life Goals + Maturity Date & Time left

2. Target Amount required at a future date for goal achievement + Gap in the same as per current investments done

3. Projected Need for investments: SIP or Lumpsum to ensure goals are on track.

4. Graphical representation for easy understanding and knowing if you are on Track!

Lets' take an example to understand better, the above image shows the Family Needs Progress Report of an investor .

This investor is approaching his retirement. On the top, he has his retirement goal, for which he needs Rs 7.50 Cr in 2 years and five months. He is running an SIP of Rs. 10,000 per month dedicated to his retirement and the current value of his investment is Rs 3.15 Cr. This investment is expected to yield 12% return p.a. and hence when he approaches his retirement, this investment will yield him Rs 4.14 Cr, as against Rs 7.50 Cr required, so there is a gap of Rs. 3.36 Cr.

Now the tool has shown him the Gap in Progress towards his Retirement Goal, and has given him two options to fulfill this gap: (i) he needs to do an SIP of Rs 10,03045. His current SIP is of Rs 10,000, so he needs to do an additional SIP of Rs 9,93,045 or (ii) he has to do a lumpsum investment of Rs 2,55,65,393.

Thus, the investor is very clear where he stands today, where he will reach in the future and what he needs to do to achieve the destination he wants to reach. At the bottom of the report, is a simple consolidation of all the above data along with the amount of mutual fund investments already mapped and yet to be mapped to goals.

Benefits of knowing your progress...

So, hopefully this sample has imparted clarity on how this report can help you manage your family needs. The Family Needs Progress Report helps you in the following ways:

1. Organized: You don't need papers or excel workbooks to mange your family needs. This report has a very simple to understand interface and will have detailed information of all your family needs as shown above. So, it saves you from all the clutter and your universe is just a few clicks away.

2. In Control: This report will show you the Gap in your Progress, and the Plan of Action you need, to ensure that you are always on the right track and at the right speed, so that you reach your target in time.

3. Discipline in investment behavior: This report will help you focus on your goals instead on short term needs or market fluctuations / noise. It will also help you stay on course of your investment planning and remove any short term anxieties. Needless to say, it will bring more maturity, direction and discipline in your investment behavior along with a commitment to achieve your long term dreams.

So the crux is, we can achieve our life goals, if we plan for them and manage them effectively. preciouswealth's Family Needs Progress Report is a tool designed to help you in carrying out your job of goal management conveniently.

You can view this report as: Home page of Client Desk as Family Need Progress Report and in detail format under Consolidated > Family Need Valuation

We hope that this report will contribute to enhancing your financial planning and investing experience.

Can you trust your Bank Relationship Manager?

Date : 12 May 2017

What happens when you go into your bank to deposit a large sum of money or if you have a huge balance in your savings bank account. Probably someone from the bank staff would approach you with an excellent investment option for your cash or your bank balance. This person is your Relationship Manager. You'll be told to divert your money into a product as the money that is lying in your account is generating very low return while their investment product will deliver way better returns.

So, shall you do as he says? Since he's your banker and there exists a relationship of trust between the bank and the customer, and you entrust your hard earned money with the bank, because you trust the bank.

The answer to this is simple, “No”

We often hear about instances wherein individuals were fooled by their Relationship Managers, and were made to invest in a product which were far from suitable for them.

A 60 year old man approached his RM, he wanted to invest a part of his retirement corpus in a product which could give him a better rate of return than his saving account. He wanted to keep this money as his emergency fund, so there should be safety of principal and flexibility of withdrawal.

The RM sold him a long term single premium endowment plan.

Now what will the poor old guy do with this policy. He has to dedicate a huge amount today which will be locked in for a long period of time, probably until he dies. Moreover, it didn't serve the purpose of an Emergency Fund. And the worst part is, he didn't even know that he bought an insurance policy.

In another instance, a 32 year old man who was on the lookout for a good tax saving option, asked his Relationship Manager for advice. The RM suggested him a product which had the following features:

1. The investment is eligible for deduction u/s 80C and 10D

2. He would get a life insurance cover of Rs 15 Lacs

3. He will get a fixed return of 12% p.a.

What else could he ask for? The RM was a Messiah for him.

Was he really?

Probably Not.

The reality was, the first two points were true. The third point had a small glitch, and that was Fixed Return, it was actually a return of upto 12%. It could be 4%, 5%, anything below 12%. And another very important point that the RM forgot to mention was, this product had a lock-in of 22 years.

The investor was quite confident about the product, but then he decided to consult his wise uncle before investing. This decision helped him from being screwed up big time. The Uncle could sense there's something fishy because of the over enticing features of the product. So, he researched and revealed the truth to this investor, that this product was not just meant for him.

There is no end to such mis-selling stories. Your bank RM should be the last person to seek investment advice from. The advice can cost you dearly.

But why do the Relationship Managers sell the wrong product to the investors?

So, they mis-sell because of the following three factors:

1. The Relationship Managers get Commissions on the investments that you do through them. And each investment product has a different commission percentage attached to it. And generally, the commission paid on a product and the quality of the product are inversely related. This means an investment product which bears a high risk and offers low return will offer a higher commission, compared to a product which bears a lower risk and offers high returns. So it goes unsaid, that the RM will pitch that product which will bring him the highest Commission.

2. The Relationship Managers get sales Targets. They get overall targets as well as targets to sell specific products. So, in order to achieve their targets, the RM would make you as their target, and will try to sell those products to you, where they are falling behind.

3. The Relationship Manager will offer those products to you which are lying on his shelf. The bank will have a tie – up with limited number of companies, so they have only those products to offer which are offered by those companies. For Eg. You want to buy a Term Plan. Now you ask your bank RM to suggest the best Term Plan for you. Since your bank has a tie up with let's say two Insurance Companies, so your RM will give you options from those two companies only. Whereas, there are so many Term Plans available in the market which are way better than the ones suggested by him. But because he has only two options to offer, so he would advise you to go for either one of them.

So to conclude, your investment is a product of the RM's Commission, his targets and the products available with him.

The only way to avoid falling prey to the trap is be updated, and take a well researched and informed decision. The idea is you should not blindly trust anyone when it is about your hard earned money and not that after reading this article, you look at your Relationship Manager with an eye of suspicion and run away whenever he comes towards you. It is because not everyone mis-sells, he might have something good for you. You should rather research, consult your financial advisor whenever you get investment advisory from someone else.

So, the crux is banks are a good place for taking loans, for depositing money, but not for seeking investment advice.

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FIRST STEPS INTO THE WORLD OF FINANCE WHAT YOUNG ADULTS NEED TO DO

Date : 05 May 2017

Young adults are perhaps the richest among all of us. They have something more - “time”, an age when the possibilities are unlimited. In case you are a young adult in 20s or 30s or a parent / guardian with children approaching or are in their 20s, this article is for you. The article guides us to do a few things which perhaps no one has ever told us to do. These things will introduce you to the world of finance and when taken, will be your first steps to the world of finance...

Why Take These Steps?

There is one common thing which most people after the age of 35 regret. That common regret is about not knowing about investments and saving at a young age. To be financially successful, being skilled and knowledgeable is not enough. You need to have the right wealth management skills to be rich. It can amplify or magnify your income many times over. Hence, while you should focus on learning and pursuing your career dreams, you should also focus on increasing your 'wealth quotient'. The earlier you take the jump, the chances of becoming wealthier soon, increases. Being in your teens or in your 20's is the best time to take the steps listed here...

The First Steps:

1. Learn about Personal Finance & Investing

Knowledge about personal finance topics and investing at an early age is a great asset. Young adults must know about different asset classes, investment products, insurance, loans & credit, time value of money, inflation, savings, taxation, financial planning, etc. Such knowledge, especially during early years of career can really help someone take great decisions for future. If you are a guardian, be sure to involve the young adults in your own investment decisions. There are many ways in which young adults can gain financial knowledge. Some of them are...

  • Read books, finance magazines and watch TV shows on investments

  • Interact with financial advisors, accountants, experienced family members

  • Attend investment seminars/camps by regulators, participants in financial services industry

  • Enroll for any certification from the many offered by NSE/BSE on the subject matter

2. Get Engaged:

Your parents must already be investing and interacting with their accountants and financial advisors. We encourage you too to participate in learning and understanding the decisions, your parents are making. You may ask them about what financial savings are being done for your future. You may also enquire about insurance coverages, etc. taken for all family members and whether those are accurate. As savvy internet users, you may also share your feedback and suggestions to your parents in their wealth management activities. We are confident that with the kind of access to information you have, you can surely start adding great value to family financial matters.

3. Control your spendings

Young adults are perhaps the most valued consumers hunted by every big brand ranging from cars to shoes to laptops to even holiday packages. With the newly gained earning power and lack of big responsibilities, it is natural that spendings on entertainment, gadgets, accessories, hanging out / parties, etc. form a big chunk of the spendings. Surely it is the time to enjoy life but young adults are advised to control their urge to splurge and not make impulsive decisions. It would be great if one can budget such spendings and avoid taking big decisions like buying motorbikes, cars, laptops, etc. without adequate thinking and research.

4. Start investing immediately:

We have often spoken on this topic. The benefit of saving early can never be under estimated. Even if the savings is small, with the power of compounding, the wealth created by you can be enormous, as seen from the following matrix.

 

In the above e.g., Mr. Delay would have to invest thrice the amount, or R 3,000 monthly, saved by Mr. Smart if he wants to match the wealth created by him at age 35.

5. Get PAN & start filing tax returns:

PAN card can be issued to any person, irrespective of whether there is any earning or not. And, if you have started earning, it is best to start preparing & filing income tax returns (ITR), unless exempted. Filling of ITR has many advantages as it is considered as a standard income proof globally and can help you while applying for loans, visa applications for jobs abroad, requesting tax refunds, etc. The PAN issued by IT authority is a prerequisite for filing ITR and is also mandatory for all financial transactions. So it makes sense to get yourself one, even if you don't have much income.

6. Get health & life cover

Getting adequate protection at a young age, where people tend to be more adventurous, is highly advised, even if there aren't any dependants on you. Buying health or life cover at a younger age is also considerably cheaper than buying the same later. Such protection can really help one, in case there is any unforeseen emergency and financial burden on parents will be avoided.

7. Start thinking about home

The average age of home & car buyers has decreased dramatically in the last 20 years. Powered by easy availability of loans, fat pay packages & growing aspirations, the first time home buyer today is often around the age of 30. The first time car buyers are even younger. It would thus be best advised that young adults keep these goals in mind and start saving as much as possible for home & car goals, if any, from now onwards. It would really benefit you a lot when the time comes for purchase in near future. Often young adults delay saving for the goal and end up paying lesser down-payments and taking higher amount of loans which should be avoided. Lastly, even if you have a house of your own, it is advisable to think of buying a house as an investment for future and also enjoy tax benefits on same.

Conclusion:

Having time on your side is a great advantage and never to be missed. It is also the time that you can afford to make mistakes while learning - this is a luxury which most people cannot afford at the later years of their lives. Experience has shown that wise decisions, actions and discipline in these formative years go a long way in securing a better financial future down the line. Simple actions taken today can help you avoid taking tough decisions at times when you have a family to support and lot of responsibilities to be taken care of. So go ahead and make the best of this time.

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Demystifying - "CIBIL score”

Ashish went to a nice restaurant for dinner with his 4 colleagues six months back. They had a fun evening and the bill for the dinner came to Rs 12,000, which was split between 5 of them. Manish paid the bill and the others had to transfer their share to Manish's account. Everyone paid, excepting Rakesh, he forgot to transfer the money.

Today, Rakesh walks up to Ashish's desk and says, "Hey, I just realized I forgot to bring my wallet, can you lend me 1,000 rupees?" And suddenly Ashish goes into a flashback and recollects that dinner and Rakesh not paying his share. Ashish, with a fake smile, unwantingly stretches his hand to reach his wallet kept in his trouser pocket. He opens the wallet, with the unbroken fake smile, he sees that he has around Rs 5000 cash, but decides to lie to his friend and says, "Sorry Manish, I just have a 100 rupee note in my wallet". Rakesh to Ashish, "No problem Ashish, I'll ask someone else" and he left.

Why did Ashish choose to not help his friend?

Because of lack of credibility

You would not want to risk your money by lending it to someone who is not credible, because there is a likelihood of him defaulting again.

This was an everyday scenario. However, when it comes to the organised sector and if you want a loan, you must make sure you don't have a credibility issue. Because you might not even get a fake smile here, and the bankers won't even pretend to stretch their hands to reach their lockers.

Banks will decide whether to give you a loan or not, on the basis of your ability to pay. And they gauge your ability to pay through your CIBIL score.

What is a CIBIL score?
TransUnion CIBIL Limited, collects and maintains credit records of individuals on the basis of their loans and credit cards holding and repayment history. These records are used to create credit scores, which are provided to banks and other credit institutions in order to help them evaluate and approve loan applications.

The CIBIL score ranges from 300 to 900. Higher the score, the better. Ideally you should have a CIBIL score of above 750 to increase the chances of your loan application getting approved.

If a person is in urgent need of money, the worst thing that can happen to him is a bad CIBIL score. It is mandatory for banks to review a loan applicant's CIBIL score among other checks.

Having a good CIBIL score will not only help you get loans easily, but also you'll be eligible for higher loan amounts, lower interest rates on loans, longer duration of loans, etc. To avail these benefits, you must maintain a good CIBIL score.

How do I maintain a good CIBIL score?
Check your Credit report. The first step is checking if you have a low CIBIL score or not. If you have a low score, then you have to get it right. You shall:

  • Pay off your credit card debt and any unpaid loans.
  • Pay your EMIs on time.
  • Reduce the number of loans and credit cards you apply for.
  • If your credit card or loan application is rejected, do not apply for it again immediately.
  • If you notice any errors in your report, you must appeal for its rectification on the CIBIL website.
  • You must not exhaust your credit card limits. Ideally, you shall use 30-40% of your credit limit each month.
  • Use the oldest credit card, the one which you have been managing well and have a timely repayment history. Get rid of others.
  • Do not be card hungry. If there are 6 different banks offering you credit cards. Do not take all of them as you do not need them.
  • Maintain an optimum balance between your secured loans (Eg. A home loan) and unsecured loans (Eg. car loan).

The above points will help you increase and maintain your CIBIL score. Even if today you have a good CIBIL score, keep the above points in mind as a small mistake can bring bring your score down. A high CIBIL score will help you get those loans easily and on better terms and conditions.

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At Sahyog Financials, our mission is to provide our clients with the comprehensive, competent, customized, and classy best solutions in wealth creation and wealth management areas. We are driven to provide clients with simple, unbiased, and uncluttered professional advice that adds value to their quality of life and results in actionable solutions.

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Sahyog Financials

Office Address:
C-41, Chandra Nagar,
MR-9, A.B Road,
Behind Hotel Amarvilas,
Indore-452011 (M.P)

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