Tag - Financial Planning

January 2017

Resolve to achieve Financial Freedom in your life!!! #Replug

Money and Happiness, Financial Freedom, Financial Planning, Retirement, Child Education

#Replug

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. 

This independence day resolve to achieve financially freedom in your life. 

November 2015

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

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!!!!!

December 2014

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

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.

November 2012

Life Cycle ~ Wealth Cycle & Financial Planning

Life Cycle ,Wealth Cycle ,Financial Planning, Wealth Management, Investments, Insurance, Accumulation Phase, Distribution Phase,

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Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time.  – Johann Wolfgang von Goethe

Financial planning, thus,  is not exclusively about retirement planning or investing or even portfolio management. If distilled to its purest elements, this discipline is more accurately understood as one that involves applying guiding principles to deal with the past, present and future finances. 

Financial planning is the process of meeting your life goals through the proper management of your finances.

It is useful to have a perspective on the life cycle and wealth cycle which you are in before going in for investing for a secure financial future. Understanding Life Cycle and Wealth Cycle is one way to become a informed investor.

These are the normal life cycle stages that people go through, viz.:

Childhood

During this stage, focus is on education in most cases. Children are dependents, rather than earning members. Pocket money, cash gifts and scholarships are potential sources of income during this phase. Parents and seniors need to groom children to imbibe the virtues of savings, balance and prudence. Values imbibed during this phase set the foundation of their life in future.

Young Unmarried

The earning years start here. A few get on to high-paying salaries early in their career. Others toil their way upwards. Either way, the person needs to get into the habit of saving. The fortunate few who start off well have to avoid falling into the trap of unsustainable life styles.

Equity SIPs and Whole-life insurance plans are great ways to force the young unmarried into the habit of regular savings, rather than lavish the money away.

This is the right age to start investing in equity. Personal plans on marriage, transportation and residence determine the liquidity needs. People for whom marriage is on the anvil, and those who wish to buy a car / two-wheeler or house may prefer to invest more in relatively liquid investment avenues. Others have the luxury of not having to provide much for liquidity needs. Accordingly, the size of the equity portfolio is determined.

Young Married

A cushion of assets created during the early earning years can be a huge confidence booster while taking up the responsibilities associated with marriage.

Where both spouses have decent jobs, life can be financially comfortable. They can plan where to stay in / buy a house, based on job imperatives, life style aspirations and personal comfort. Insurance is required, but not so critical.

Where only one spouse is working, life insurance to provide for contingencies associated with the earning spouse are absolutely critical. In case the earning spouse is not so well placed, ability to pay insurance premia can be an issue, competing with other basic needs of food, clothing and shelter. Term insurance (where premium is lower) possibilities have to be seriously explored and locked into.

Depending on the medical coverage provided by the employer/s, health insurance policy cover too should be planned. Even where the employer provides medical coverage, it would be useful to start a low value health insurance policy, to provide for situations when an earning member may quit a job and take up another after a break. Further, starting a health insurance policy earlier and not having to make a claim against it for a few years, is the best antidote to the possibility of insurance companies rejecting future insurance claims / coverage on account of what they call “pre- existing illness”.

While buying an insurance policy, there has to be clarity on whether it is a cashless policy i.e. a policy where the insurance company directly pays for any hospitalization expenses. In other policies, the policy-holder has to bear the expense first and then claim re-imbursement from the insurer. This increases the liquidity provisions that need to be made for contingencies.

All family members need to know what is covered and what is not covered in the policy, any approved or black listed health services provider, and the documentation and processes that need to be followed to recover money from the insurer. Many insurance companies have outsourced the claim settlement process. In such cases, the outsourced service provider, and not the insurer, would be the touch point for processing claims.

Married with Young Children

Insurance needs – both life and health – increase with every child. The financial planner is well placed to advise on a level of insurance cover, and mix of policies that would help the family maintain their life style in the event of any contingency.

Expenses for education right from pre-school to normal schooling to higher education is growing much faster than regular inflation. Adequate investments are required to cover this.

Married with Older Children

The costs associated with helping the children settle i.e. cost of housing, marriage etc are shooting up. If investments in growth assets like shares and real estate, are started early in life, and maintained, it would help ensure that the children enjoy the same life style, when they set up their independent families.

Pre-Retirement

By this stage, the children should have started earning and contributing to the family expenses. Further, any loans taken for purchase of house or car, or education of children should have been extinguished. The family ought to plan for their retirement – what kind of lifestyle to lead, and how those regular expenses will be met.

Retirement

At this stage, the family should have adequate corpus, the interest on which should help meet regular expenses. The need to dip into capital should come up only for contingencies – not to meet regular expenses.

The availability of any pension income and its coverage (only for the pensioner or extension to family in the event of death of pensioner) will determine the corpus requirement.

Besides the corpus of debt assets to cover regular expenses, there should also be some growth assets like shares, to protect the family from inflation during the retirement years. 

Wealth Cycle is an alternate view to look at a person’s profile. The stages in the Wealth Cycle are: 

Accumulation

This is the stage when the investor gets to build his wealth. It covers the earning years of the investor i.e. the phases of the life cycle from Young Unmarried to Pre-Retirement.

Transition

Transition is a phase when financial goals are in the horizon. E.g. house to be purchased, children’s higher education / marriage approaching etc. Given the impending requirement of funds, investors tend to increase the proportion of their portfolio in liquid assets viz. money in bank, liquid schemes etc.

Inter-Generational Transfer

During this phase, the investor starts thinking about orderly transfer of wealth to the next generation, in the event of death. The financial planner can help the investor understand various inheritance and tax issues, and help in preparing Will and validating various documents and structures related to assets and liabilities of the investor.

It is never too early to plan for all this. Given the consequences of stress faced by most investors, it should ideally not be postponed beyond the age of 50. 

Reaping / Distribution

This is the stage when the investor needs regular money. It is the parallel of retirement phase in the Life Cycle.

Sudden Wealth

Winning lotteries, unexpected inheritance of wealth, unusually high capital gains earned – all these are occasions of sudden wealth, that need to be celebrated. However, given the human nature of frittering away such sudden wealth, the financial planner can channelize the wealth into investments, for the long term benefit of the investor’s family.

In such situations, it is advisable to initially block the money by investing in a liquid scheme. An STP from the liquid schemes into equity schemes will help the long term wealth creation process, if advisable, considering the unique situation of the investor.

Given the change of context, and likely enhancement of life style expectations, a review of the comprehensive financial plan is also advisable in such situations.

Understanding of both life cycle and wealth cycle is helpful. However, one must keep in mind that each investor may have different needs and unique situations; the recommendations may be different for different investors even within the same life cycle or wealth cycle stages.  (~source NISM)

October 2012

What are Model Portfolios ~ A Financial Planner Tool

Model Portfolios, Strategic Asset Allocation, Tactical Asset Allocation, Financial Planner, Financial Planning, Equity, Debt, Gold, Real Estate.

Model Portfolios

Since investors’ risk appetites vary, a single portfolio cannot be suggested for all. Financial planners often work with model portfolios – the asset allocation mix that is most appropriate for different risk appetite levels. The list of model portfolios, for example, might read something like this:

Young call centre / BPO employee with no dependents

50% diversified equity schemes (preferably through SIP); 20% sector funds; 10% gold ETF, 10% diversified debt fund, 10% liquid schemes.

Young married single income family with two school going kids

35% diversified equity schemes; 10% sector funds; 15% gold ETF, 30% diversified debt fund, 10% liquid schemes.

Single income family with grown up children who are yet to settle down

35% diversified equity schemes; 15% gold ETF, 15% gilt fund, 15% diversified debt fund, 20% liquid schemes.

Couple in their seventies, with no immediate family support

15% diversified equity index scheme; 10% gold ETF, 30% gilt fund, 30% diversified debt fund, 15% liquid schemes.

Please note that these percentages are illustrative and subjective. The critical point is that your financial planner should have a model portfolio for every distinct client profile. This is then tweaked around based on specific investor information.

Thus, a couple in their seventies, with no immediate family support but very sound physically and mentally, and a large investible corpus might be advised the following portfolio, as compared with the previous model portfolio.

20% diversified equity scheme; 10% diversified equity index scheme; 10% gold ETF, 25% gilt fund, 25% diversified debt fund, 10% liquid schemes.

Within each of these scheme categories, specific schemes and options can be identified. So next time when you sit with your financial planner, don’t catch whatever advise gets thrown at you ~ Question him about the model portfolios in his toolkit and the reasons behind them.

It will help you develop a sustainable financial plan

How are Mutual Fund Gains Taxed?

Capital Gains Tax, Equity Mutual Funds, Debt Mutual Funds, Indexation Benefits, FMP's, Balanced Mutual Funds.

Capital Gain is the difference between sale price and acquisition cost of the investment. Since mutual funds are exempt from tax, the schemes do not pay a tax on the capital gains they earn.

Investors in mutual fund schemes however need to pay a tax on their capital gains as follows:

Equity-oriented schemes

– Nil – on Long Term Capital Gains (i.e. if investment was held for more than a year) arising out of transactions, where STT has been paid

– 15% plus surcharge plus education cess – on Short Term Capital Gains (i.e. if investment was held for 1 year or less) arising out of transactions, where STT has been paid

– Where STT is not paid, the taxation is similar to debt-oriented schemes

Debt-oriented schemes

– Short Term Capital Gains (i.e. if investment was held for 1 year or less) are added to the income of the investor. Thus, they get taxed as per the tax slabs applicable. An investor whose income is above that prescribed for 20% taxation would end up bearing tax at 30%. Investors in lower tax slabs would bear tax at lower rates. Thus, what is applicable is the marginal rate of tax of the investor.

– In the case of Long Term Capital Gain (i.e. if investment was held for more than 1 year), investor pays tax at the lower of the following:

— 10% plus surcharge plus education cess, without indexation

— 20% plus surcharge plus education cess, with indexation

Indexation means that the cost of acquisition is adjusted upwards to reflect the impact of inflation. The government comes out with an index number for every financial year to facilitate this calculation.

For example, if the investor bought units of a debt-oriented mutual fund scheme at Rs 10 and sold them at Rs 15, after a period of over a year. Assume the government’s inflation index number was 400 for the year in which the units were bought; and 440 for the year in which the units were sold. The investor would need to pay tax on the lower of the following:

— 10%, without indexation viz. 10% X (Rs 15 minus Rs 10) i.e. Rs 0.50 per unit

— 20%, with indexation.

Indexed cost of acquisition is Rs 10 X 440 ÷ 400 i.e. Rs11. The capital gains post indexation is Rs 15 minus Rs 11 i.e. Rs 4 per unit. 20% tax on this would mean a tax of Rs 0.80 per unit.The investor would pay the lower of the two taxes i.e. Rs0.50 per unit.

Here’s how different funds are taxed and who should invest in them:

Debt schemes held for short term: If you fall under 10% tax bracket, growth option would be better—as there is no DDT (13.519%). Dividend option is better if an individual falls under higher income brackets (20% or 30% & above) as the DDT is lower. Debt schemes if held for short term ( less than one year), then capital gains tax will added to income and taxed according to the slab.

Debt funds held for long term: If you want to invest in debt schemes for more than a year, growth option is a better choice. In case of debt schemes, long term capital gains are taxed at 10% without indexation and 20% with indexation.

This article – Guide to debt funds & article – Debt funds can prove beneficial from Economic times further articulates the tax advantages & other benefits of investing in debt funds. 

Source : NISM

 More on Mutual Funds

September 2012

Procedure for Transmission of Shares, In the Event of Death of the Shareholder

Procedure for Transmission of Shares,in the Event of Death of the Shareholder , Stock Investing, SEBI India

Life is uncertain..But Death is certain

Recently, an acquaintance had to undergo the process of transmission of shares when she lost her spouse to an unfortunate mishap. It is good to be aware of the process of transmission as documented by SEBI. I am putting this here for the benefit of our readers.

“Transmission” is the terminology used for this procedure that means passing of property in shares to the legal heirs. In the event of death of the shareholder procedure for transmission of shares is as follows;

 Where there is a nominee;

For shares in demat mode, you have to send to the Depository Participant (DP);

  1. Notarized copy of the death certificate
  2. Duly filled Transmission Request Form (TRF).

For physical shares, you may be requested to send any of the below documents to the Registrar and Share Transfer Agent (RTA);

  1. Original Share certificates.
  2. Duly filled Transmission Request Form (TRF).
  3. An affidavit / declaration by the nominee declaring his rights.
  4. Notarized copy of the death certificate.

Where there is no nomination: (Part A)

 Shares held in Demat mode;

 Where value of the shares is upto Rs. 100,000, one or more of the following documents is to be furnished to the DP;

  1. Notarized copy of the death certificate
  2. Transmission Request Form(TRF)
  3. Affidavit – to the effect of the claim of legal ownership to the shares,
  4. Deed of indemnity – Indemnifying the depository and Depository Participants (DP)
  5. NOC* from legal heir(s), if applicable or family settlement deed duly executed by all legal heirs of the deceased beneficial owner.

Where value is more than Rs 100,000, the Depository Participants (DP) may additionally insist on one or more of the following documents;

  1. Surety form
  2. Succession certificate
  3. Probated will

Shares held in Physical mode:

 Where the Shares are in physical mode, The RTA (Registrar/Share Transfer Agent) may insist on any of following documents;

  1. Original Share certificates.
  2. Duly filled Transmission Request Form (TRF).
  3. Notarized copy of the death certificate.
  4. Succession certificate or
  5. Probate or letter of administration duly attested by Court Officer or Notary

 * In case of multiple successors, NOC from non-applicants shall be recorded on the share transmission form of the applicant instead of insisting separate share transmission form from each of the successors.

 Transmission of shares is required to be done within a period of one month for share held in physical form and within seven days for shares held in Demat form, from the date of lodgment of the Transmission Request Form by listed companies.

Sources: SEBI

July 2012

National Strategy for Financial Education~Draft Released

RBI, IRDA, SEBI, Financial Literacy, Inclusive Growth, Education Initiative, Money, Financial Planning, Insurance

In a speech in March 2010 (RBI-OECD Workshp) , the then Finance Minister of India, Pranab Mukherjee had said ” Financial literacy, and education, plays a crucial role in inclusion, inclusive growth and sustainable prosperity”.

Well, today the draft strategy is released which lays down the Vision, Mission, Goals, Strategic Actions and various stakeholders (RBI, SEBI, IRDA, PFRDA, MOF etc) who will be involved in this mammoth task. 

Financial Education, being an important life skill, the strategy mentions of introducing the financial education as part of the school curricula. 

The strategy seeks to create a financially aware and empowered and literate India.

The document strategy is here: National Strategy for Financial Education

Comments can be emailed toypriyab@irda.gov.in or kgplramadevi@irda.gov.in  by August 15, 2012.

 

Financial Planning Workbook from NISM ~ An Excellent read

NISM, SEBI, Financial Planning, Risk Management, Insurance, Retirement, Estate, Investments, Planning

The Financial Planning Workbook has been jointly developed by the National Institute of Securities Markets (NISM) and Financial Planning Corporation (India) Pvt. Ltd (FPCIL) to assist candidates in preparing for the non-mandated Certified Personal Financial Advisor (CPFA) Examination.

NISM is an educational initiative by SEBI.

It covers various Concept of Financial Planning , Managing Investment Risk ,Measuring Investment Returns ,  Investment Vehicles , Investment Strategies, Insurance Planning, Retirement Planning, Tax and Estate Planning & Need for Regulation.

It is an excellent read for anyone looking for an overview of financial planning.

Certified Financial Planner Advisor Workbook from NISM (National Institute of Securities Market)

September 2010

Reliance – 2nd among world’s largest value creators

There is a report in Business Standard which mentions many Indian Companies amongst the world’s largest value creators in this decade. The report is here :

Mukesh Ambani-led Reliance Industries has been ranked second in the list of world’s 10 biggest ‘sustainable value creators’, companies that have been successful in creating the most shareholder value over the last decade, prepared by Boston Consulting Group.

Reliance Industries again comes second in the ‘Large Cap firms’ for 2005-2009 of 112 global companies with a market valuation of more than 35 billion dollars.

In the chemicals industry, Reliance Industries has been named the second biggest value creator of 53 global firms during the period behind South Korea’s OCI.

However, the stock has virtually not given any returns over the past 2 years….. Many investors are losing patience now and
letting go of the stock in favor of Banks, Pharma and FMCG Companies…. which have outperformed…
If you compare the returns of Reliance with the BSE Index, the result is quite glaring….Sensex is up almost 40 % in last one
year……Whereas Reliance has not given any return at all ……
So , What is next …….. Well a relief rally should be on cards till 1200 at least if the stock holds above 960 levels. …. And this will definitely bring smiles to the investors… and the markets as well.

August 2010

What and How of Nifty Index!!!

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One of my friend recently just wanted to get an idea about Nifty and How it is calculated. I am presenting some basic facts about Nifty here….

Background of Nifty

S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India’s first specialised company focused upon the index as a core product. IISL has a Marketing and licensing agreement with Standard & Poor’s (S&P), who are world leaders in index services.

  • The traded value for the last six months of all Nifty stocks is approximately 44.89% of the traded value of all stocks on the NSE
  • Nifty stocks represent about 58.64% of the total market capitalization as on March 31, 2008.
  • Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.15%
  • S&P CNX Nifty is professionally maintained and is ideal for derivatives trading

What and How of Nifty Index, How is stock selected in Index, Sensex, India Index Services and Products Ltd. (IISL)NSE, CRISIL, Liquidity,  Impact Cost, Floating Stock, index calculation

How Stocks are selected :

The constituents and the criteria for the selection judge the effectiveness of the index. Selection of the index set is based on the following criteria:

Liquidity (Impact Cost)

For inclusion in the index, the security should have traded at an average impact cost of 0.50% or less during the last six months for 90% of the observations for a basket size of Rs. 2 Crores.

Impact cost is cost of executing a transaction in a security in proportion to the weightage of its market capitalisation as against the index market capitalisation at any point of time. This is the percentage mark up suffered while buying / selling the desired quantity of a security compared to its ideal price (best buy + best sell) / 2

Floating Stock

Companies eligible for inclusion in S&P CNX Nifty should have atleast 10% floating stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies.

Others

a) A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfills the normal eligiblity criteria for the index like impact cost, market capitalisation and floating stock, for a 3 month period instead of a 6 month period.

b) Replacement of Stock from the Index:

A stock may be replaced from an index for the following reasons:

i. Compulsory changes like corporate actions, delisting etc. In such a scenario, the stock having largest market capitalization and satisfying other requirements related to liquidity, turnover and free float will be considered for inclusion.

ii. When a better candidate is available in the replacement pool, which can replace the index stock i.e. the stock with the highest market capitalization in the replacement pool has at least twice the market capitalization of the index stock with the lowest market capitalization.

With respect to (2) above, a maximum of 10% of the index size (number of stocks in the index) may be changed in a calendar year. Changes carried out for (2) above are irrespective of changes, if any, carried out for (1) above.

And Finally how is the index calculation done

S&P CNX Nifty is computed using market capitalization weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.

Source : NSE

July 2010

The Simple rules to Successful Investing – Part 1

The Simple rules to Successful Investing , Understanding Investing, Stocks, Mutual Funds, Tax, Insurance, Estate, Wills.

“No amount of talking or reading can teach you swimming. You will have to get in the water.”

There are these little general rules which are applicable and useful for decision making and taking actions. And these simple rules are applicable in so many aspects of life, they are just some small reminders, some common-sense stuff which are really useful.

And yes most of them are applicable in investment planning as well.

a. Perfect Plan – Forget it.There is no such thing as a perfect investment plan and no such thing as a perfect time. The right time is now. Tomorrow is and always will be uncertain. Perfectionism is the enemy of action. Do not let perfect investment plan or a perfect time to invest stop you from starting.

b. Analysis Paralysis – Too much thinking will often result in getting stuck.Some thinking is good — it’s good to have a clear picture of where you’re going or why you’re doing this — but don’t get stuck thinking. Just do.

c. Get the Broad Picture and Start. You need to get the broad picture in your mind. You need to understand your future requirements or what do you want to achieve (goals). You need to know the time you have to meet those requirements. And, then you should have the broad plan to meet the goals. Once you have the broad picture. Get going.
All the planning will take you nowhere unless you take that first step, no matter how small it is.

d. Keep things Simple and take Small Steps. Small steps always work. Little tiny blows can break down that mountain. And then each step counts. Keep the big picture in mind, but start by taking small steps.

Understand the advantage of Investing Early here.

The Little Rules to successful action To be contd … Part 2.

Sensex touches 18000 again , two kinds of investors, two different views ….

chart.

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” ~ Benjamin Graham

Sensex is at 18000 once again.

(A) Many Investors who had invested since 2007  when the markets were around the same levels are not happy. Most of them are waiting to get out of the markets when they are able to get cost to cost. Reasoning — they could have got better returns in Bank FD’s in last 3 years.

(B) Many Investors who invested in Markets in 2009 are super excited as almost all their investments have doubled.  Most of these investors have become developed short term view. They believe that they know everything about markets and they can easily generate good returns time and again. Many want to get out at these levels and reenter at sensex 12000 levels only now. They are experts you see.

Greed and Fear works in both the directions of the markets.

Investors who fall in the above categories do not realize the following fundamental rule of nature which is applicable to markets as well : “THIS TOO SHALL PASS AWAY”.

My view is that investors in either of the above categories will probably never be successful over a investment lifecycle of 3 – 5 – 10 years.  Period. Because the above reasoning of exit from market is based purely on market returns and not based on fulfillment of life objectives. And this kind of reasoning falls in the category of speculation.

Do you fall in any of the categories mentioned above…..

“Free Lunch” Seminars—Avoiding the Heartburn of a Hard Sell

"Free Lunch" Seminars,Avoiding the Heartburn of a Hard Sell , Retirement Planning, Investment Planning, Tax Planning, Life insurance selling malpractices.

BEWARE —-Investors frequently get invited to free seminars. These seminars make tall promises. To educate  about investing, or profit from home trading strategies or about managing money in retirement. They also provide VIP treatment , sometimes provide an expensive meal at no cost.

Please remember that , just because someone buys you breakfast, lunch or dinner does not mean you that you have to buy into whatever these guys they are saying. And definitely you need not buy into all what they are selling. Believe me , you will avoid some serious heartburns……… Use your judgment to arrive at a decision later point in time.

The same holds true when specially you go to buy a car. Most people spend a good time looking at the car and take a test drive. Now just because the salesman spent his 30mins — does not mean that you need to buy the car.

The same holds for when you are being sold — Life Insurance, General Insurance, Boutique stores, Electronics etc.

Be careful – If you do not wish to purchase and are being forced into a deal , Use your judgement and Learn to say No – firmly. We live in an age where it is still a buyer’s market – do not forget this.

February 2010

What is adequate life insurance coverage?

What is adequate life insurance coverage,foundation of financial planning, current liabilities, financially secure the foreseeable future, .

“Death is certain and Life is uncertain.”

You work hard, You earn , You save. You plan and have dreams. You do this to secure your future and the future your loved ones.

However, your untimely demise, can jeopardize the future of your loved ones. Emotional needs, of your loved ones and your dependents cannot be replaced or compensated.
However in case of financial needs, you can always plan ahead, so that your loved ones are left behind with adequate financial resources to take care of their future needs. This is all the more important in case you have dependents who are financially dependent on you (like your non-working spouse, children , old parents etc.).

This is where “adequate”  insurance of  “life” assumes such a significance.
Life Insurance is the foundation of financial planning and you should ensure that it is properly planned, first.

Many a times , I am truly surprised when I ask clients and people about their insurance coverage. I get responses like the following :
“I believe I am adequately covered” (– Salary 20Lacs/yr, Home Loan 40K / month, Car Loan 3Lacs, 2 young school kids, Insurance coverage – sum assured around 40Lacs ONLY – 2 policies, annual premium around 2Lacs) And he believes he is adequately covered. Badly mistaken……………

“I have one investment flat, and one flat in which I currently live – In case something happens to me , my wife can sell that flat and that can easily service the needs of the future”. I told him, why does he need to wait for his death, in order to sell the flat. Why is he not doing it now.? An hence why should his spouse sell the property to finance family needs ……………? This person understood the crux and went ahead to increase his insurance………….

“My father tells me about the futility of insurance – See, he is 65 yrs of age and he is still going hale and hearty” – This is such a stupid response. It is really difficult to believe seemingly intelligent people making such comments………….

“I will get 20Lacs at the end of the policy” Upon asking , how much money his wife will get in case he were to die today  – His reply was ” I do not know, I will have to check my policy”. He does plans his weekend outing to Lonavla and Khandala or other places near Mumbai along with friends meticuluosly. But hey , no plans for life………

” I have a child insurance policy which will give me 15 Lacs in due course apart from my endowment life policy of 20Lacs” Again , this fellow has been sold into these policies is paying roof high premiums for paltry insurance. And by the way, why insure your child , when you yourself are inadequately covered. Also does one really need child’s life to be insured to cover financial needs. No……….

” I have a ULIP (Unit Linked) policy and the agent has promised me guaranteed (LOL……..) returns in next 15 years” ……… I am sure the agent also must be laughing his way to the bank ………..

” I had bought policy from LIC to to save taxes. And I am happy to save on taxes”Now buying insurance just to save taxes is one of the worst mistakes one can make. Buying Life insurance to save taxes or to invest is just not right………

These are responses of intelligent,hardworking , well educated people. However, they fail to get the financial planning act together. I am sure that they can also put in little extra effort to get this part right as well.

As you can see, all the responses above have one underlying theme – all of the different sets of people have inadequate Life Insurance coverage. In some  cases unplanned, some have planned but due to thier ignorance have been sold products which will truly not help in case of insurance.

Let us face it , no one likes to really think about his own death. However, the truth also cannot be denied that death is indeed certain.It can happen in (a) normal course of time (let us say avg 70yrs)  (b) earlier in an untimely fashion (let  us 30 -45yrs) — this is prime time when dependents really need you (c) or later than normal. (>85+ yrs)

All the three cases can be properly planned for.

So, that brings us to the question — What is adequate life insurance coverage?

Simply put, an adequate life insurance coverage should cover the current liabilities of the descedent and should financially secure the foreseeable future needs of the dependents in such a way that the lifestyle of the dependents remains unaffected going forward and life goes on normally as if nothing truly happened……………..

Later we will see , how much insurance do you need. Or How to arrive at the magic figure of sum assured. You can read the post here at How much life insurance do I need?