JUST SAY “NO” to 7 MISTAKES in YOUR RETIREMENT PLANNING

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financial planning, financial freedom, Bad investment products to avoid, Retirement Planning, Child Plans

JUST SAY “NO” to 7 MISTAKES in YOUR RETIREMENT PLANNING

1. Say NO to Horribly expensive traditional life insurance policies like Money Back, Whole Life etc. peddled as investments. Even PPF beats them hands down.  They make money only for the agent. NOT for you. !!!! Don’t ruin your future in the name of tax savings.

2. Say NO to Terrible ULIP schemes, which eat away your capital due to high expenses in the initial years. Mutual Funds are way better than ULIP’s

3. Say NO to Margin Trading / Derivatives trading/ Overleveraging  in Stock Market/Real Estate The markets can remain irrational more than you can remain solvent. !!!!

4. SAY NO to Bank RM’s who sell sub standard hybrid close-ended products for their commissions, which has no relevance in your financial goals. Why should banks be selling insurance products anyways? Think…. RM’s are ultimately trying to meet their targets at your cost!!!

5. SAY NO to children insurance policies pitched emotionally. They DO NOT NEED life cover. Remember they need you & your Love , & so YOU are the one who needs LIFE COVER to protect your family.!!!!!

6. SAY NO to Multiple credit cards & Credit Card Companies as they fleece you by offering you deceptive & expensive high interest EMI payments.

7. SAY NO to fly-by-night fraudulent agencies (Saradha Type Schemes), pyramid type companies who offer unreasonable returns. You will probably lose your entire capital. Don’t become penny wise , Pound foolish…..

Learn to Say No. Adopt a life strategy similar to corporate strategy. Write down a list of ‘Not to pursue’ in your life & investments. Whenever an option shows up, test it against your list. This will not only save you a lot of trouble , it will also save you a lot of time and money. Remember, many doors are not going through, even when the handle seems to turn so effortlessly.

Take the step to Remove BAD investment products and then SAY YES TO Achieving FINANCIAL FREEDOM & SECURING your RETIREMENT & future & Gift yourself financial freedom.

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How to avoid investing in MisManaged Companies – Understand Balance Sheet

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How to avoid investing in mismanaged companies, Misallocation of capital, Successful Investing Tips

Most investors keep looking for the magic investing mantra which can keep compounding returns. Many burn their fingers by getting into wrong companies. The first step of successful investing and to avoid investing in MisManaged Companies is to Understand Balance Sheet of a company.

A balance sheet, also known as a “statement of financial position,” reveals a company’s assets, liabilities and owners’ equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company’s financial statements. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.

Here is a great starting point from Investopedia to understand reading a balance sheet. Another article talks about the due diligence that should be followed before choosing a stock to invest is another checklist which the investors should always keep handy when doing a first cut analysis before giving a ‘pass’ and research further.

Bala writes about a wonderful article on Misallocation of capital  which gives examples of why to avoid investing in companies which misallocate capital.

When you start looking at a balance sheet, a quick first cut analysis can help you eliminate researching further if you come across these common account red flags…

The Indian stock market, in aggregate, carries a relatively high risk that a minority shareholder will not realize the value in a listed firm because the controlling shareholder (or promoter as they are known in India) will appropriate value for himself, leaving little on the table. The risk is higher relative to certain other stock markets mainly because of limited regulation. In addition, lax enforcement indirectly encourages such behavior. Kimi writes on how one can avoid such landmines in his elaborate article peppered with examples.

Successful investing is all about avoiding the companies/ sectors/ industries which are mismanaged and going aggressively after the good ones…As Charlie Munger famously said “Tell me where I’m going to die, that is, so I don’t go there.”…..

Happy Investing….

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Resolve to Achieve Financial Freedom in your life!!!!!

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Financial Freedom, New Year Personal Finance Resolution, Investments advise for beginners, Basics of INvestment Philosophy

Martin Seligman author of ‘Authentic Happiness’ and research psychologist has said that there are three parts to happiness : Pleasures, Engagement and Meaning.

Pleasure is the feel good part, the short term happiness of material possessions in life.
Engagement refers to good life involving work, friends, family and hobbies.
Meaning is using our time and strengths towards a larger purpose.
He reckons, that Although all the three are important , it is the last two which make a significant difference.

Now a lot of time we spend goes into increasing or earning money. Hence it is worth figuring out where money and hence financial freedom comes into play in our overall happiness.

Does Higher Income really lead to Happiness though? Is the million dollar question.

When researched , the results are surprising. ?  A study from Princeton University found that a larger paycheck does lead to a happier life—but only to a certain point. ($75,000 per annum to be precise)

What really affects our happiness more than how much we make is our attitude toward money and the way that we handle it. When we hold fast to the belief that money directly determines happiness, life becomes a constant pursuit of accumulating ”more”.

Would winning a lottery make us the happiest people on earth? Harvard Psychologist Dan Gilbert says NO.

He goes on to prove that we human beings are very good at adapting but extremely poor in predicting when it comes to our emotions and feelings.We tend to overestimate the duration and intensity of our future emotions.

For eg: A dream home with all modern amenities couple of extra bedrooms, with a beautiful view gives pleasure for a few months. Before the purchase, we tend to think that the possession will provide everlasting happiness and also experience that the happiness will be the ultimate satisfaction. But the same disappears later. At times it can also possibly have a negative effect on happiness at times.

Even when you change jobs or progress in career he has found out across subjects that in approximately 3 months they are back in the same place in terms of happiness. You can extend the examples to Car , let’s say you buy a porche or a BMW , the impact is the same.

This is one of the most important research subject in behavorial finance. Known as Hedonic treadmill. We work hard, earn more, and are indeed able to afford better and nicer things and yet it dosen’t make us any happier. The deeds and things you worked so hard for no longer make you happy; you need to get something even better to boost your level of happiness.” 

Wouldn’t it be better if we knew exactly how happy a new car, career, house or relationship would make us? It is quite possible if we do the following :

Avoid negative things that you cannot get accustomed to such as commuting , noise, chronic stress
Expect only short term happiness from material things such as cars, houses, lottery tickets, prizes, bonuses.
Accept your present
Aim for as much free time and autonomy as possible since long lasting happiness comes from what you actively do
Follow your passions even if you have to forfeit a portion of your income for them
Invest in friendships

Finally, Understand your relationship with Money. Don’t let money control your life . Rather Get a control over Money.

Have clear financial goals, focus on purchasing assets (rather than accumulating liabilities) and make your assets work along with you in order to achieve those goals. Remember, assets is something which puts money in your pockets, where as liabilities is something which takes money out of your pockets.

Make your money work so hard for you so that you never have to work for money….

Resolve to achieve financially freedom in your life!!!!!

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Fantastic Buffett Quote: Patience & Stock Markets!!!

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Warren Buffett Quotes, Patience & Investing, Value Investing Quotes

The Stock Market is a device for transferring money from the impatient to the patient…. Warren Buffett

Business, Investing & Leadership Quotes

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Latest Cost of Inflation Index March 2014 & Double indexation benefits.

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Latest Cost of Inflation Index March 2014 , Double indexation benefits, Short term debt, 30% tax bracket, Investing strategies, year end tax planning

Cost of Inflation Index upto FY 2013-14. (The year mentioned is financial year(FY) 

The cost of inflation index is useful for income-tax assesses in the computation of tax on long-term capital gains (for indexation purposes). In the previous two years, the cost inflation index rose 10 per cent and 12.5 per cent, respectively.

A cost inflation index helps reduce the inflationary gains, thereby reducing the long-term capital gains tax payout for the taxpayer. Currently, the income-tax law allows long-term capital gains to be computed after adjusting for inflation (Debt Mutual Funds, FMP’s, Real Estate Gains etc.) .

The cost of acquisition as well as the cost of improvement is adjusted for inflation between the date of purchase and date of sale (through the cost inflation index) before the long-term capital gain is ascertained.

Assume, if the investor invested Rs 1,00,000 in the growth option on March 30, 2012 and redeemed the investment on April 2, 2013 for Rs 1,10,000 

The investment happened in financial year 2011-12, for which the government has declared cost inflation index of 785.

The investor redeemed the investment in financial year in 2013-14, for which the cost inflation index is 939.

The capital gains is Rs. 110,000 minus Rs. 100,000 i.e. Rs. 10,000.

The holding period is 367 days, which is more than 1 year. Therefore, it is a long term capital gain.

The maximum tax the investor has to bear is 10% (plus surcharge plus education cess) on the capital gain of Rs. 10,000. Thus, the maximum tax payable would be Rs. 1,000 (plus surcharge plus education cess).

Investor can benefit from indexation. The indexed cost of acquisition is Rs. 100,000 X 939 ÷ 785 i.e. Rs. 119,618 . This is higher than the selling price of Rs. 110,000. Thus, the investor ends up with a long term capital loss of Rs. 9,618. So no tax payable and also this can be set off against long term capital gains, as discussed in the next section.

Another point to note is that although the investor held the investment for slightly more than a year, the investor gets the benefit of indexation for two years viz. 2011-12 and 2012-13. Hence the name “double indexation” for such structures.

Mutual funds tend to come out with fixed maturity plans (FMP’s) towards the end of every financial year to help them benefit from such double indexation. Even short term debt is a good investment towards the financial year end, as they too offer the same benefits. 

Largely investors are unaware about this benefit. This benefit can and should be taken by investors who are in 30% tax bracket as they get the maximum benefit. So, invest in wither FMP’s or Short term Debt (Holding period > 1 yr) towards the end of a financial year, and sell towards the beginning of a financial year and take advantage of   double indexation tax benefit for virtually tax free capital gains. Money saved is indeed Money earned.

Be Money Savvy and invest smart. Happy Investing. 

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Success Quotes ~ John Templeton

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What is Success, Quotes from Jon Templeton, Investment Principles

Success is a process of continually seeking answers to new questions. ~ John Templeton

Business, Investing & Leadership Quotes

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Types of Investors – What type are you?

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Types of Investors , Conservative, Aggressive, Risk taker, Risk Profiling, Risk Averse, Savers, Specialists, Speculators

I came across this good article at http://www.threetypes.com/philosophy/investor-types.shtml and wanted to share. It essentially discusses the various types of Investors viz : Savers, Speculators and Specialists and then goes on to explain how becoming a Specialist, is something which generates immense wealth over lesser periods of time , but which also requires tremendous efforts on the part of the investor.

Go ahead and decide which type of investor you are and then invest accordingly. Enjoy Investing…..

Savers

Savers are those people who spend the majority of their life slowly growing their “nest egg” in order to ensure a comfortable retirement. Savers explicitly choose not to focus their time on investing or investment strategy; they either entrust others to dictate their investments (money managers or financial planners) or they simply diversify their investments across a number of different asset classes (they create “a diversified portfolio”). For those who create a diversified portfolio, their primary investing strategy is to hedge each of their investments with other “non-correlated” investments, and ultimately generate a consistent annual return in the range of 3-8% (after adjusting for inflation). Those who entrust their money to professional money managers generally get the same level of diversification, and the same 3-8% returns (minus the management fees).

Savers seek low-risk growth of their capital, and in return, are willing to accept a relatively low rate of return. While there is certainly nothing wrong with striving for consistent returns, what the Saver is doing is really no different than putting their money in a Certificate of Deposit, albeit with slightly higher returns. The bulk of Savers are investing for long-term financial security and retirement. They start saving in their 20’s and 30’s by putting money in 401(k) accounts, mutual funds, and other diversified investments, and in 30 or 40 years, they have enough to retire on.

Savers rely in a single force to grow their capital: time. Because their rate of return is generally consistent, a Saver’s primary mechanism to achieve wealth is to invest and wait. In fact, Savers often use The Rule of 72 to calculate long-term investment growth and plan their retirement. While passive investing is an almost surefire path to a comfortable retirement, it also generally means 30-50 years of work to get to that point.

Speculators

Unlike Savers, Speculators choose to take control of their investments, and not rely solely on “time” to get to the point of financial independence. Speculators are happy to forgo the relatively low returns of a diversified portfolio in order to try to achieve the much higher returns of targeted investments. Instead of just spreading their money across stock funds, bonds, real estate funds, and a variety of other asset categories, Speculators are always looking for an investing edge. Perhaps they get a hot stock tip and try to cash in on the next Google. Or perhaps they hear about all the real estate investors who have made a bundle flipping houses, so they go out and buy the first run-down house they see.

Speculators recognize that they can have higher returns than Savers, and are willing to do or try anything to get those returns. They’re not scared to throw some money in an Options account and try their hand at derivatives trading; or run out and buy a bunch of inventory from a wholesaler they know and open up an eBay selling account. Speculators are always looking for the next great investment; for them, it’s all about being in the right place at the right time, and taking a chance on getting rich. If today’s investment doesn’t work out, there will always be another one tomorrow. Continue reading

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Financial Planning ~ Purpose of Accumulation ~ Quotes

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Financial Planning Quotes,  Purpose of Accumulation, Money Quotes, John Rockefeller quotes

If you only goal is to become rich, you will never achieve it. ~ John D Rockefeller

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Have Clear Goals for Success ~ Quotes

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Have Clear Goals for Success , Mark Pincus Quotes, Success Quotes Pictures, Inspirational Messages, Investment Quotes

Not having a clear goal leads to death by a thousand compromises – Mark Pincus

Business, Investing & Leadership Quotes

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12 Rules of Success… Steve Jobs

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12 rules of success Steve Jobs, Financial Planning quotes, Behavioral Finance Inspirational Pictures

Business Leadership lessons from Steve Jobs. The 12 rules of success…

Business, Investing & Leadership Quotes

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Success Quote

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Success Quotes, Investing Wisdom , Value Investing Quotes

Success doesn’t come to you… YOU go to it….

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Wealth Quotes

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Wealth Quotes, Investment Quotes, financial Planning, Wealth Management, Behavioral Finance

Wealth is not about having a lot of money.. It is about having a lot of options….

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Understand Income Tax Clubbing provisions and How to invest in Spouse’s Name

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Income Tax clubbing Provisions, Investing in Spouse Name, Tax Implications, Section 64

Financial planners contend that couples should ideally combine their finances. The meshing together of the investments of the husband and wife not only strengthens the household’s financial fibre but gives them a comprehensive view of the real situation.

However, the taxman has set limits to this joining of the finances of the two spouses. He has no problems if one spouse gives money to the other. After all, it’s their money and spouses are in the list of specified relatives whom you can gift any sum without attracting a gift tax.

But if that money is invested and earns an income, the clubbing provisions of the Income Tax Act come into play. Section 64 of the Income tax Act says that income derived from money gifted to a spouse will be treated as the income of the giver. It will be clubbed with his (or her) income for the year and taxed accordingly.

For instance, if you buy a house in your wife’s name but she has not monetarily contributed in the purchase, then the rental income from that house would be treated as your income and taxed at the applicable rate. Similarly, if you give money to your wife as a gift and she puts it in a fixed deposit, the interest would be taxed as your income. Don’t think you can get away by clever ploys involving other relatives.

For instance, one may think of gifting money to his mother-in-law, a transaction that has no gift tax implications. Then a few days later, the lady gifts the money to her daughter, which again does not have any tax implications. The money can then be invested without attracting clubbing provisions, right? Wrong.

Given that most big-ticket transactions are now reported to the tax department by third parties (banks, brokerages, mutual funds, insurance companies), it may not be difficult to put two and two together. If the taxman discovers this circuitous transaction, you may be hauled up for tax evasion. Are there ways to avoid the clubbing provisions without crossing the line between tax avoidance and tax evasion? Yes.

If you want to buy a house in your wife’s name but don’t want the rent to be taxed as your income, you can loan her the money. In exchange, she can give you her jewellery. For example, if you transfer a house worth Rs 10 lakh to your wife and she transfers her jewellery for the same amount in your favour, then the rental income from that house would not be taxable to you.

One can also avoid clubbing of income by opting for tax exempt investments. There is no tax on income from the Public Provident Fund (although the 8% interest rate offered and the 15-year lock-in does not compare with fixed deposits). There is also no tax on gains from shares and equity mutual funds if held for more than a year. So, if one invests in these options in the name of the spouse, there is no additional tax liability.

In fact in case of PPF , Shares, Mutual Funds, FMP’s , Tax free Bonds etc the section 64 clubbing provisions are still applicable but as the income is tax free, no worry for you.

(~ Source Economic Times)

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6 good ways for year end tax planning.

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Tax planning strategy, year end tax saving strategy, Section 80C deductions, Benefits of investments and taxation

You can use the following 6 good ways for year end tax planning.

1. Let your dud stocks help you save tax
Since long-term capital gains from stocks sold on stock-exchange is exempt from tax; long term capital losses from the stocks is also not allowed to be set-off and / or to be carried forward. Therefore you should convertyour short term unrealized losses from stocks into actual loss and reduce your tax liability.

What if you want to retain the loss making stocks for a long term? It’s very simple—just sell it on or before March 31 and buy it back any time from 1st April onwards. In other words, book temporary loss for tax purpose.

In simple words, it is always preferable to book short term capital losses at the end of financial year on your loss making stocks (even if you want to keep them for long term and don’t want to dispose) and buy them in next financial year. By that way, you will be able to lower your capital gains (by utilizing these losses for setting off against your other capital gains) and consequently lowering your tax liability.

2. Use bonus-stripping 
Do you know that bonus shares also provide tax arbitrage opportunity? How? What is the relationship between issue of bonus shares and saving tax?

The practice of buying the shares at cum-bonus price and selling the ‘original shares’ at ex-bonus price and booking short term losses in the process is called ‘bonus stripping’ and similar to ‘dividend stripping’.

As per the current IT provisions, tax laws allow ‘bonus stripping’ in case of equity shares.

So, if during the financial year, you’ve purchased any shares against which company has further allotted you bonus shares, then you must sell the ‘original holdings’ and book short term capital loss.

But how does it help save tax? Let me explain with the help of an example, suppose you purchased 100 shares of ABC ltd at a price of Rs 300 per share in the month of November 2012. Later on, in the month of January 2013 when the price was ruling at Rs 350 per share, the company came with 1:1 bonus and you were allotted 100 additional shares so that after the bonus issue, you held 200 shares at the adjusted ex-bonus market price of Rs 175 and now the market price is ruling at, say, Rs 200 per share. Now, if you sell the original 100 shares and keep the ‘bonus shares’, you can book a short term capital loss of Rs 10,000 (Rs 20,000 – Rs 30,000) for tax purposes.

Your next question will be: Won’t this tax benefit get set-off against gains from selling bonus shares? Yes, only if sell the bonus shares before one year from the date of allotment. On the other hand, if you sell the bonus units after a period of 12 months, the capital gains will be long term and therefore completely exempt.

3. Invest your short term surplus in FMPs
By investing in a Fixed Maturity Plans (FMPs) at the end of the financial year (i.e., the month of February & March), you an avail double indexation benefit by holding the investments for just 13-15 months.

In other words, at the end of a financial year, Fixed Maturity Plan with duration of 13-14 months becomes the best debt option due to associated double indexation benefit

4. Advance tax payment: Way out
Note that even though TDS is being deducted by your employer on your salary income, you are liable for payment of advance tax on your other income like interest, capital gains etc if the tax liability exceeds Rs 5,000.

It is good, if you can calculate tax on your other income and pay the advance tax by yourself. But if you want to avoid the hassle, there’s a way out. You can submit the particulars of ‘other income’ to your employer and request him to deduct tax on your additional income. The employer cannot refuse because it’s a right provided to you under income tax law.

5. Get Form-16, even if tax on your salary income is ‘nil’
Form -16 is more important than your tax-return. Now-a-days everybody asks for it as proof of your income. So how to ensure that your employer issue you a Form-16 even when your salary income is below the basic exemption limit. In other words, how to force the employer to deduct a nominal amount of tax and issue you a TDS certificate in ‘Form-16’

There are two possible scenarios:

o Your income is below taxable limit without availing section 80C deductions: Submit a declaration showing other income such as capital gains, income from house property, interest on savings account, bank FDs, NSC, KVP and NCDs (if any).

o Your salary income goes below taxable limit only after availing section 80C deductions: Don’t submit any proof for tax savings or submit so much evidence so as to bring your taxable salary income to such a level which is marginally higher than basic exemption limit.

In both the cases, your employer would be forced to deduct TDS from your salary income and issue you a TDS certificate in ‘Form-16’.

6. Avail depreciation benefit on cars, books & computers
If you’re a professional and planning to buy a new car, books or a computer, consider purchasing on or before March 31 to avail depreciation benefit for 6 months and thereby save tax.

Be a Smart Investor and savvy tax saver….

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Top 10 ELSS Mutual Fund Investments for 2014!!!

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Section 80C investments, ELSS, Mutual Funds investments, Tax saving , Tax planning

Most of the investors have begun to ask about investing in ELSS Mutual funds as we are nearing March. As you are aware, ELSS investments can be claimed as deduction u/s 80C (up to a max of 1 lac)

Here is the list of top performing ELSS Mutual funds.The list is based on past 5 years performance One can also choose and invest based on past 3 years performance. Since the ELSS as locked in products for 3 years, it does not make a lot of sense to compare or invest based on performances of less 1 year.

Top 10 ELSS based on 5 years performance are :
Scheme Name
1. ICICI Pru Tax Plan 25%
2. Canara Robeco Equity Tax Saver 22.4%
3. Quantum Long Tax Saving 22.2%
4. HDFC Long Term Advantage 21.8%
5. Franklin India Tax Shield 21.1%
6. L&T Tax Advantage 20.9%
7. Reliance Tax Saver 20.6%
8. IDFC Tax Advantage 20.4%
9. DSPBR Tax Saver 20.3%
10. Birla SL Tax Relief 96 19.7%

Happy Investing…..

 

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