Category: Taxation

How Global NCAP 5-star rating and Financial Planning are related?

Late in India global 5-star rating became famous and people started looking at the safest vehicle.

For a car to be safe on the road is this the only safety thing that matters or something else also?

Think Again!!!

Yes, you got it, it’s your efficient driving skill as well. 

If I say, give a score out of 10, how much you will give it to both?

It is Driving Skill 6 and Safety Car 4 if you are on the highway

It Driving Skill 7 and Safety car 3 if you are in an open, less traffic city 

Its Driving Skill is 8 and its Safety rating is 2 if you are in congested traffic cities like Bangalore, Delhi, etc. 

In addition, so much so forth. 

It’s always many permutation combinations, whether it’s in a village in a hilly area, or desert, etc. 

Driving learning skills are also available on YouTube, Twitter, Instagram, etc. Still, you need to learn it on your own from some consultant. Again, when rules change, you need to update it. In addition, you need to adapt too many real-time situations when you are in a car on the road. Isn’t it!!

Simple Car driving is so complex.

Let me consider this in financial planning. 

Everything today is available on the internet free. You are learning this and DIY. When real-time situations like recession, Covid, etc. happen or some regulatory rules change, you need to adapt.

Every day new types of products are being launched. Apart from that, many non-regulated high-return products are also available in the market where your principal is at RISK.

In real time, you need to control your emotions to deal with your investments. 

So in this regard, you need either a paid mentor or a mentor who should get some commission out of your investment. 

The call is yours!

Warren Buffet has an advisor group led by the Late Charlie who later becomes his partner.

Sachin Tendulkar had a mentor.

All big sportspersons also have their coach and trainer.

Lord Krishna was the mentor of expert Arjun. 

Do you know the world’s best gynaecologist never operates on his wife or daughter because emotion may hamper his performance in operation theatre? 

When it comes to money, also a similar situation happens. 

“DIY is overrated and Financial Planning is underrated 

5-Star safety is overrated and driving skill is underrated”

Just think once and let me know if I can help you in any regard for your financial well-being.

Weekly Update on Mutual Fund (17Jan-23Jan – 2022)

1.DSP Mutual Fund launches global NFO
2.With a fear of interest rate hike money is going out of equity globally which in turn resulting into market correction but this can be a best opportunity to achieve rupee cost averaging for MF investors.
3.Edelweiss mutual fund to restrict flows into recently listed IPO fund
4.Motilal Oswal Mutual Fund launches Nifty200 Momentum 30 ETF, Index Fund
5.UTI Mutual Fund launches UTI Sensex Index Fund
6.Navi Mutual fund launches Nifty Bank Index Fund

Types of Health insurance for Corona

Good Morning Money!

Q. So to cover hospitalization expenses due to Covid-19, all insurers are coming out with two products – one is indemnity based and the other is benefit based. Who should buy what?

A. Before coming to that conclusion let us first understand the basic differences between these two:

  • the indemnity based product will allow a policyholder to claim hospitalization expenses (related to Covid-19 treatment) until it’s within the chosen sum insured amount.
  • the benefit based product on the other hand will pay a lump sum amount equal to 100% of the sum assured amount if the policyholder tests positive for covid-19 and requires hospitalization for a minimum period of 72 hours. The minimum sum assured shall be Rs. 50,000 and the maximum limit is up to Rs. 3 lakh. An individual will be allowed to purchase only one such policy.

It is always recommended that you buy a comprehensive health plan rather than these single disease specific products. If you can’t afford that, then you can consider buying indemnity based Covid-19 Standard Health Policy. If you already have a comprehensive health plan and you want to buy extra cover for Covid-19 treatment then you can consider buying the benefit based product mentioned above.

Good morning money 26 June 2020- health insurance to cover covid19-part1

Good Morning Money!

Q. Is there any specific health insurance policy coming up which will cover only Covid-19 related costs?

A. Yes, you heard it right. The insurance regulator IRDAI has asked all general and health insurers to offer two products specifically for Covid-19 by July 15. One will be an indemnity-based product (Covid-19 standard health policy) and the other one will be benefit based product (Covid-19 standard benefit-based policy).

The policy wordings and the benefits offered will be same across all insurers, though the pricing of the products i.e. premium will be set by the insurers independently.

Under the indemnity-based product, minimum sum-insured or base cover will be Rs. 50,000, though one can opt for a higher cover of up to Rs. 5 lakhs in multiples of Rs. 50,000. The base cover will be offered on an indemnity basis whereas the optional cover (hospital cash benefit) shall be available on a benefit basis. The policy will pay for hospitalization (minimum 24 hours) expenses ( including PPE kits ) incurred by the policyholder for the treatment of covid-19 on positive diagnosis for the infection from a government-approved diagnostic center.

To be continued…

Good Morning Money 24 June 2020- Do you know difference between wealth management and financial planning?

Good Morning Money!

Q. Whenever we talk about personal finance, we also often talk about wealth management and financial planning. Are not they same?

A. No, they are not the same, though wealth management and financial planning are often used interchangeably.

Wealth management simply means managing wealth. It also means for those who have existing wealth or people who are wealthy. The principal goal here is to preserve and grow existing wealth. This takes into consideration one’s risk profile, investment horizon and market outlook. Portfolio based asset allocation and diversification plays a big role here. In short, it’s more of active money management.

Financial planning on the other hand is essentially goal driven. It’s principal aim is to create wealth out of limited investible surplus. This service is fit for anyone and everyone. Ideally it should start with budgeting and cash-flow management. Asset allocation here is often done on horizon basis and not on portfolio basis. Priority of goal, available timeframe and surplus takes precedence here over one’s risk profile. In short it’s more of a passive money management.

Tax planning, risk management and estate planning can be part of both. Though it depends.

Good Morning Money 23 June 2020- Do you know difference between asset allocation and diversification?

Good Morning Money!

Q. Whenever we talk about investments, we also often talk about asset allocation and diversification. Are not they same?

A. No, they are not the same, though asset allocation and diversification are often used interchangeably.

Asset allocation simply means that how and in what combination one should invest his total capital into different asset classes – e.g. cash, fixed income, equity, real estate and commodity. Asset allocation depends on one’s investment horizon, risk appetite, risk taking capacity and type of goals, if any. Sometime, for someone the ideal asset allocation could be investing into a single asset class. When there’re multiple asset classes in a portfolio, they should be negatively correlated.

Diversification on the other hand makes sure that the allocation in any single asset class is not concentrated. Suppose your suggested asset allocation says that out of Rs. 100, you should invest Rs. 40 in equity. Then diversification makes sure that this Rs. 40 is not invested entirely in a single stock. For diversification within the same asset class, positive correlation is fine – but they shouldn’t be perfectly correlated.

Good Morning Money 18 June 2020 How far your money is safe with private insurance companies part-1?

Good Morning Money!

Q. Most of my friends when they buy pure insurance product or invest in any ULIP or endowment plan from a private insurance company – they fear that what will happen to their claim or investment if the insurance company shuts down its operations or declares itself bankrupt.

A. Their concerns are valid but at the same time it is mostly unfounded. The insurance regulator (IRDA) is quite strict in adhering to the principles that is set up to allow any insurance company to launch or run its business in India. There are many such principles or rules to make sure that our investments and insurance claims are kept in safe hands. One of those principles is ‘Solvency Ratio’.

During its operation, an insurance company is always supposed to keep adequate reserve of fund vis-a-vis the minimum requirement as calculated by an actuary.

Solvency Ratio = Available Solvency Margin (ASM) / Required Solvency Margin (RSM)

The ASM is the value of the company’s assets over liabilities. Whereas RSM is calculated by actuary based on net premiums collected by a company.

According to IRDA guidelines, all companies are required to maintain a Solvency Ratio of 150% to minimise bankruptcy risk.

Good Morning Money 12 June 2020 – Financial Ritual to be completed before 30 June

Q. Though FY 2019-20 ended on 31st March but many financial tasks which were to be completed by then got an extension till 30th June, 2020. What are those tasks?

A. There are many. I am not producing here any comprehensive list of tasks, just chosen few which are relevant for most of us –

(1) Making tax-saving investments to claim deduction for FY 2019-20: Till 30th June you can make investment/payment or buy insurance for claiming deduction under Section 80C (ELSS, PPF, life insurance etc.), 80D (Mediclaim), 80G (Donations), etc. (anything that falls within the scope of Section 80C to Section 80GGC is eligible)

(2) Filing belated / revised ITR for FY 2018-19: If the belated and/or revised ITR for FY 2018-19 was not filed before 31st March, then you can file the same before 30th June now.

(3) Linking Aadhar to PAN: Link your PAN with Aadhar before June 30. Unless you do it, your PAN will become invalid.

Bonus task: CBDT has stated that the Form 15G/Form 15H submitted by taxpayers for FY 2019-20 will remain valid till June 30, 2020 for FY 2020-21. So, those who are required to submit these forms for lower or nil deduction of tax from their income can submit it by the first week of July 2020.

Good Morning Money 11June2020 Money lessons for your parents part-2

Good Morning Money!

Q. We were discussing that whether senior citizens should know about and invest into market linked investment instruments or not?

A. Learning about is always fine and often proved helpful too. But whether to invest or not into a certain product or asset class, is a different thing altogether.

First thing first – they should understand the risk aspect – of investing as well of not investing into market linked instruments. Not every portfolio needs to have such assets, but where does your portfolio stand – you need to know that clearly. Unfortunately this cannot be a one-time exercise. This has to be done repeatedly. Things around you and you yourself are changing continuously – there is no escape from that.

Though such decision of investment is very much portfolio specific, still few facts cannot be ignored – (1) unless you withdraw a minuscule portion of your corpus, you will require to have exposure in equity to beat lifestyle inflation over long term (2) equity, debt, commodity and real estate can come in various flavours and combinations – stay updated with the changes (3) asset allocation is important.

Good Morning Money 10June2020-investment lessons for your parents part-1

Investment links as below

https://play.google.com/store/apps/details?id=com.fzb&referrer=7C7723–2364257C77237C7723266B7C246C3C266B7C246C3C266B7C–7C7723


https://www.fundzbazar.com/internalclientsignup-7C7723-2364257C77237C7723266B7C246C3C266B7C246C3C266B7C

Good Morning Money!

Q. Like children do our parents (senior citizens) also need to learn about (and invest into) stocks, mutual funds or other similar market-linked assets? Or can they avoid these assets completely and keep on investing into assets that they are familiar with?

A. This cannot have a straight answer. It depends on so many things – some are known or can be controlled – (1) what amount do they have? (2) how much they need to withdraw every month? (3) what percentage of lifestyle inflation they experience at home? and some are not known or cannot be controlled – (4) how will market reurn, interest rate and tax scenario evolve? (5) what will be the healthcare expenses? (6) how long will we require the fund to sustain (life expectancy)?

These questions may look simple at first but not so simple if we try to answer them as accurately as possible. Looking at the complexity and uncertainity of the situation, a detailed if-else analysis need to be done at the start of the retirement life and thereafter every year (or half-yearly).

Learning about different investment options available is always a good thing and is highly encouraged.

To be continued…