Essential things to do before you retire

Mr Sanjeev Sharma, 50, is working as head of operations in a leading auto ancillary company. Sanjeev has been a conservative investor but most of his savings were consumed either in down payment of the house or for daughter’s wedding.

Sanjeev’s take-home salary is Rs 30 lakhs and his annual expense includes Rs 12 lakhs living expense and Rs 9.25 lakhs home EMI. The EMIs will continue for another ten years and the current home loan outstanding is Rs 58 lakhs. Other than employer’s health coverage, Sanjeev also maintains a personal health plan for his family.

Although Sanjeev expects to receive Rs 2.5 crores from the provident fund at the time of retirement but he is worried, whether that is enough funds to retire at 60.

Just like Sanjeev, if you are also worried about your retirement, you can do a few things so that your retired life is more comfortable and enjoyable.

Protect your emergency fund

Emergency expenses can happen any time. However, the possibility goes up, as you grow older. The emergency reserve must increase year on year, based on the inflation and change in your expense levels. Sanjeev must always maintain six months of his living expenses for the emergency.

Payoff all your loans

If you are taking a housing loan, personal loan, car loan or any other loan make sure that you repay them on or before your retirement. You need to choose the term of the loan in accordance with your retirement age. You can truly enjoy your retired life when you have 100 per cent financial freedom, not when you have to repay your loans.

Sanjeev has an outstanding home loan of Rs 58 lakhs. The home loan will be paid off before he retires but in case he has additional income say an annual bonus, he can partially reduce the home loan.

Understand your retirement needs

You need to visualize your retired life well in advance and need to create a budget for your retirement. Most of the people start to plan for their retirement when they are close to their retirement age. Often it is too late to have a structured approach to creating appropriate fund before you retire.

You can always consult a professional financial advisor who can set realistic expectations and create a right asset allocation for your retirement fund. However, here is a simple formula to know your retirement corpus.

Current annual living expenses X years of retirement.

Assuming, Sanjeev’s life expectancy to be 85 years, retirement corpus at 60 would be Rs 12 lakhs X (85-60) = Rs 3 crores.

Rs 2.5 crores will be available through the provident fund and that will leave a deficit of Rs 50 lakhs. Sanjeev maybe required to invest Rs 3 lakh annually for the next ten years to cover the deficit.

Examine your cash flow

Assess your cash flow situation and consider any income that will continue post your retirement such rent, interest income, etc. You must realign your existing policy and other investments in sync with your retirement age.

Sanjeev has a cash surplus of Rs 5.75 lakhs after meeting living expenses, home EMI and retirement savings. An additional saving of this amount can create further retirement cushion.

Consider inflation withdrawal strategy

When someone retires, the bulk of payout is made through an employer. In case you have not created a plan for withdrawal you can either commit your funds to wrong investment channels or park in an extremely safe option that does not cover your retirement life. One simple rule is to spread your retirement savings across various vehicles and then strategize with withdrawal strategy to ensure continuity, stability and tax-efficiency.

The monthly income you need when you retire is not going to be the same even after 5 years of your retirement. Inflation will increase your retirement expenses year after year. Therefore, your retirement portfolio should grow more than the inflation.

Sanjeev expects Rs 2.5 crores from his employer’s provident fund in ten years. Careful due-diligence of investment vehicle well in advance can reduce Sanjeev’s tax during his retired life.

Get sufficient healthcare coverage

The moment you retire, your employer will stop covering you under the group medi-claim. Therefore, you need to plan for your individual medical cover. If you have not planned it properly then all your retirement plans can go haywire.

Sanjeev must continue to maintain his personal healthcare plan and if required, evaluate super top-up plan to increase coverage.

Appropriate action by Sanjeev can ensure his peaceful retirement.

Do not put off today what you cannot afford to do tomorrow. Understand your retirement goals and structure your current investments so that you can retire comfortably.

Trends that will shape the personal finance landscape

Trends that will shape the personal finance landscape

Personal finance space will come to be dominated by highly educated and trained professionals who will offer quality advice.

This is expected to reduce the scope for mis-selling, which has been the bane of this field in the past.

Another important trend that is expected to gain momentum is investors’ desire to employ technology to gain greater control over the process of investing and to simplify and ease their investing experience.

Together these trends are expected to improve the investor’s experience.

Growing demand for financial planners

Investing only in traditional options such as Employees’ Provident Fund (EPF), Public Provident Fund (PPF) and traditional insurance plans will no longer suffice to help them meet their ambitious financial goals.

Many investors today have high disposable incomes, which gives them the confidence to assume a higher risk.

When you combine both these factors, you get a set of investors who are prepared to go beyond the ambit of traditional investment avenues. They are willing to invest in market-linked products that carry higher risk but also have the potential to produce higher rewards.

Such investors require a well-diversified portfolio. Each of these portfolios must have the appropriate mix of asset classes, keeping in mind the investment horizon and the investor’s risk appetite. Creating such portfolios requires investors to seek professional guidance and a willingness to pay for advisory services. This is increasingly happening nowadays.

Many retail investors are now willing to hire a professional financial planner. These financial planners prepare a plan based on an assessment of the client’s cash flows. They also carry out goal-based planning. The charges for a financial plan vary from one planner to another. Some charge as little as Rs 10,000 while others ask as much as Rs 40,000 per annum. This trend of investors hiring the services of professional financial planners or advisors is likely to gain further momentum in the future.

Direct mutual funds and SEBI-registered advisors

Most investors lack knowledge regarding how and where to allocate their money. Instead of investing through a mutual fund agent, an investor can now invest in direct mutual funds via a SEBI-registered investment adviser.

A registered investment adviser can provide conflict-free, quality advice since he does not get remunerated by commissions from the product but by the fee that the customer pays him.

Thus, it is in the interest of such an advisor that the client invests in the right funds and his portfolio grows at a healthy pace.

Indirect funds no commission is paid to an agent, so the expense ratio of these funds is lower. This, in turn, boosts the returns from these funds over the long term.

More investors are likely to turn to the combination of direct mutual funds and SEBI-registered investment advisers.

Online investment platforms

More and more investors today tend to be IT-savvy. They want to be able to invest independently, that is, without using the services of an agent or distributor (to avoid the sales push that such interactions inevitably entail). Such investors also ask for frequent and on-demand reporting of how their investments are faring.

Numerous online investing platforms have emerged over the past few years to cater to this IT-savvy generation of investors. Most of the platforms that came up in the past depended on commissions for remuneration.

The big change that has happened in the recent past is the emergence of platforms that offer brokerage-free products. These platforms may charge you an annual fee but that’s it. They sell direct plans of mutual funds and receive no commissions from fund houses.

Their emergence will help informed customers migrate to lower-cost direct mutual funds. These platforms are well-suited for the do-it-yourself kind of investor who wants to start small. However, professionals who do not have time to research on their own will stick to direct plans through a SEBI registered adviser.

Growing financial literacy

Progress on this count may have been slow, but it has been steady. Thanks to the growing proliferation of personal finance media (newspaper articles, magazines, TV shows, websites and blogs), investors are becoming more aware of what they should and should not do.

To cite just one example, many investors now no longer mix insurance and investment. They realise the importance of buying term plans for their insurance needs and mutual funds for building an investment portfolio.

SEBI and the stock exchanges sponsor financial literacy programs. Even mutual funds nowadays earmark a portion of their fees for investor education.

As the reach of these programs expands to tier II and tier III cities, one can expect more people to turn financial savvy in the years to come. Of course, there is a long way to go on this count before we reach a satisfactory level.

Brokerage disclosure

Sebi is framing rules that will require detailed disclosure on mutual fund commissions earned by the agent or distributor. The purpose is to help the investor assess whether the distributor is genuine and has sold a product that meets investors objective. This is another step towards ushering in a regime of higher transparency.

Startup investing

A new trend that has come to notice is investing in a start-up without understanding its fundamentals.

On the one side, there are experienced angel investors who know exactly what to look for in a start-up. Pitted against them are amateur investors.

If more amateur investors invest in start-ups, one can foresee many ending up with an unpleasant investment experience.

Early retirement

Young investors want to be financially independent as soon as possible. Many young professionals want to start something of their own. This requires them to attain financial freedom quite early in their life. The trend towards people becoming financially independent by 40’s is likely to gather pace in the future.

SEBI’s support for registered investment advisers will be instrumental in ushering in many of the above-mentioned changes. In the future, the personal finance landscape is likely to be dominated more by professionals rather than sales agents. While these trends are at a nascent stage today and it may be three to five years before they become widespread, this is the direction in which things are likely to move. As we progress towards an era of higher transparency and ease of doing investments, a greater percentage of investors are likely to be satisfied.

This article was first published by Business Standard.

When is a good time to invest?

When is a good time to invest?

When the markets are high, people are concerned. When the markets are low, people are concerned.


– Investors always ask this question.

As a young student of finance more than 15 years back, I always wanted to know an answer to this question.

How does share price emerge?

This is an underlying thought of whether this is a good time to invest or not.

In quest of answering this question, I started reading books on investing. Fortunately, came across a book “Intelligent Investor” by Benjamin Graham.

This line in the book answered my question and changed my perspective on the stock market:

“In the short run, a market is a voting machine but in the long run, it is a weighing machine.”

In the short-term, mood of the market defines where the prices would be going. However, in the long-term, company’s performance defines the performance of share price.

Can there be an analytical tool to assess the market mood?

Let us look at how you can assess the current mood of the market. This factor does not predict the future but focuses more on the present state i.e. whether the market is over or under-bought.

Earning yield + Dividend yield – 10 years government yield

A positive number indicates that market is undervalued; else, you are better off in bond investing. At any point in time, the portfolio may be maximum 75% in equity and minimum 25% in equity.

If you would have followed this strategy for the last 18 years, using purely 10-year government bond yield and Nifty 500 index, the return would have been 15% per annum. Except 2008, for all the rest of the past 18 years, the return was positive. This way you can plan your portfolio better and manage your investment psychology better.

The analysis indicates that current market is overvalued, finding investment opportunities may be a challenge and you are better off parking majority of your investments in bonds.

Here are the investment rules I follow in my firm:

1. Assess the market using the analysis provided above. I use NSE500 as a proxy for equity, dividend yield as 1.57% and current 10-year government bond yield.

2. When my model indicates +2% factor, perform fundamental analysis on selected companies that are deeply discounted. This touches upon the long-term view, “market as weighing machine” analogy.

Where do you find deeply discounted value? A company that is fundamentally strong but has a lot of negative news around it. 52 weeks low is more relevant than 52 weeks high 🙂

3. If the factor is less than 2%, a combination of ETFs, short-term debt funds and a mutual fund may be used. Finding deeply discounted equity is a challenge in this zone.

I like sitting on cash i.e. being invested in bonds if I do not see any opportunity in the equity market. I do not like chasing returns; I like managing my risk better.

Please stay away from people who tell you that they will chase a certain return for you.

No one in the world can predict where the equity markets will go. However, smart investors always know that they can always manage their risk better and returns are generated over a period of time.

The consistency of return while managing portfolio risk is more important than high returns during bull-run.

Interestingly, print and TV news focuses on figuring out the short-term view of the market. There are not many options to get information without opinions. You will be better if you do not read or watch at all than getting opinionated about the markets.

Just keep it simple and manage your portfolio peacefully so that you do not lose sleep!

Tax Savings and how you can save taxes legally ?

Tax Savings and how you can save taxes legally?

There are various legal ways to save taxes in India, yet a lot of people don’t take advantage of tax saving benefits.

Listed below are some options you can explore.

1.) Saving taxes under sections 80C, 80CCC and 80CCD

To promote the culture of savings the Income Tax Department provides various incentives to taxpayers in India. If a taxpayer invests in financial instruments as specified under sections 80C, 80CCC and 80CCD, then the taxpayer can claim a deduction for those investments from their taxable income.

The maximum deduction allowed under these sections is Rs 1,50,000 per year.

This means that if you invest Rs 1.5 lacs in the instruments as specified in u/s 80C, 80CCC and 80CCD, you can save between Rs 7,500 to Rs 45000 per year depending upon your income tax bracket.

Example: Let’s assume an individual’s income is Rs 5 lakhs. There is a standard deduction of Rs 2.5 lakhs so your effective taxable income is Rs 2.5 lakhs.

If you don’t make any tax saving investments, you are liable to pay tax on the entire taxable income of Rs 2.5 lakhs. At 5% tax rate, you will pay taxes of Rs 12,500.

If you invest Rs 1.5 lakhs, then your net taxable income now reduces from Rs 2.5 lakhs to just 1 lakhs. Now, you are liable to pay tax only on Rs 1 lakhs. At 5% tax rate, you will now pay a tax of Rs 5,000.

This has two advantages:

  1. You have saved Rs 7,500 in taxes.
  2. You also have a forced savings of Rs 1.5 lakhs, which will grow in the future.

There are many investment options, which are specified by the Income Tax Department that can be used to claim this deduction.

Here is a list of most popular ones:

  • Public provident fund (PPF)
  • 5-year tax saving fixed deposit
  • Equity-linked savings scheme (ELSS)
  • Contribution to employee provident fund (PF)
  • Pension plans
  • National savings certificate (NSC)
  • Insurance policy premium payments
  • Principal repayment for a home loan

You should ideally allocate these investments for your retirement. Mostly, people make tax saving investments in PPF/NSC/PF and think that their future is secure.

These investments are only to cover inflation and will never grow your wealth in real terms.

Therefore, you can also add growth-oriented assets such as Equity oriented mutual funds (ELSS).

Additionally, you can plan to invest Rs 50,000 per year in NPS that can provide you with a tax benefit over and over Rs 1.5 lakh limit. So effectively, you can reduce Rs 2 lakhs in total if you exhaust Sec 80C limit and invest more than Rs 50,000 in NPS.

2.) Saving taxes under sections 80D, 80DD, 80DDB Section 80D

The income tax department allows you to save taxes if you have purchased a health insurance policy. A deduction is available up to a limit of Rs. 25,000 p.a. for insurance of self, spouse and dependent children. If individual or spouse is more than 60 years old the deduction available is Rs 30,000.

An additional deduction for insurance of parents (father or mother or both) is available to the extent of Rs. 30,000.

Section 80DD

You can claim up to Rs 75,000 for expenses incurred on medical treatment of your dependents (spouse, parents, kids or siblings) if they have 40% + disability.

Section 80DDB

An individual (less than 60 years of age) can claim up to Rs 40,000 for the treatment of specified critical ailments. This can also be claimed on behalf of the dependents. The tax deduction limit under this section for senior citizens is proposed as Rs 60,000 and for very Senior Citizens (above 80 years) the limit is Rs 80,000.

3.) Saving Taxes via a home loan

You can claim up to Rs 2 lakhs as a tax deduction on the interest component of your home loan EMI repayments every year if you are residing on the same property.

If your property has been rented, then the entire interest component payable for the year can be claimed as a tax deduction.

Additionally, principal payment on a home loan is covered under section 80C.

4.) Saving Taxes via an education loan

If you have taken an education loan, any interest payment towards the loan qualifies for a deduction u/s 80E.

This loan is taken for higher education for the assessee, spouse or children or for a student for whom the assessee is a legal guardian.

5.) Saving taxes via long-term capital gains from the sale of a house

Any long-term capital gains, made by selling primary property is eligible for exemption of capital gains tax if the incremental amount is invested in specific tax saving investments (like tax saving infrastructure bonds etc.).

Any asset is considered as a long-term capital asset if the taxpayer holds that asset for more than 2 years.

Let’s assume you bought a house for Rs 50 lakhs and sold it 5 years later for Rs 1 crore. You are liable to pay long-term capital gains on the profit you have made i.e. 50 lakhs.

However, if you invest the Rs 50 lakhs in tax saving infrastructure bonds, then you will be exempted from paying capital gains tax. 

6.) Saving Taxes via long-term capital gains from the sale of shares

You pay 10% long-term capital gain tax if the shares or equity mutual funds are sold after one year.

If the shares or equity mutual fund units are sold within a year from purchase date, short-term capital gain tax at 15% will be applicable.

So if you bought shares or mutual funds worth Rs 60 lakhs, which increase in value to Rs 1 crore after a year, you will not be liable to pay 10% tax on the profit of Rs 40 lakhs i.e. Rs 4 lakh.

NOTE: The deductions and tax rates mentioned above are applicable for the financial year 2018-2019 and usually change from year to year.

Great, now that you have discovered six ways to save tax legally, here are six incomes that you shouldn’t forget to declare.

1.) Interest earned from savings bank account

This interest is tax-free up to Rs. 10,000. Any interest earned above that is taxable and should be declared.

2.) Interest earned from fixed deposits/recurring deposits

This is taxable as per one’s income tax slab. Banks will deduct 10% as TDS when the interest accrued is more than Rs. 10,000 (unless one submits Form 15 G/H).

However, the actual tax liability will probably be more or less, depending upon the tax bracket of an individual.

3.) Cash gifts

Cash gifts of over Rs. 50,000 should be declared as they are taxable (unless for specific occasions like marriage).

4.) Capital gains/losses

Any capital gains/losses made from trading equities, selling mutual funds, gold, etc. should be declared even though they may be nontaxable (e.g. ULIPs, the long-term capital tax is nil). Similarly, any losses should be declared as these help in offsetting gains for subsequent years.

5.) Exempt income

Exempt income (e.g. interest earned on PPF/EPF accounts) should be declared for auditing purposes only. This is a tax-free income.

6.) Dividend income

Dividend income from equity stock holdings or mutual funds is tax-free in the hands of the investor. However, this should be declared while filing income tax returns.

Generally, many individuals who are employed will get a Form 16 from their employer, which is usually sufficient for filing your income tax returns. However, if you have income from the above 6 sources, you should declare that to your CA so that your returns can be correctly filed.

If you don’t declare an income and the IT department initiates a scrutiny against you and discovers it, you may be liable to pay a penalty.


Why Indians need financial advisors?

Why Indians need financial advisors?

“I want a risk free investment option that gives me a good return”

Well, this is what we often hear from clients.

Risk and return

Most Indians do not understand the correlation between risk and return. Everyone wants a high return without assuming any short-term volatility. There is a direct relationship between risk and return. If you want a high return, there will be high risk (volatility) in the short-term. This is the reason linking return with time horizon or goals makes complete sense.

Capital protection

Why should anyone lose money, after all, it’s your hard-earned money? However, it’s equally important to know that short-term volatility has no bearing on long-term returns. We should delink associating short-term volatility with investment risk.

Laid back attitude

How much you earn has nothing to do with how much wealth you accumulate. Often ‘being rich’ is attributed to ‘he must have done something wrong, that’s why he has money’. Making money in life is all about attitude. This is precisely the reason everyone from IIT/IIM is not a millionaire. And those who are, may not be cheats!

Bias towards physical assets

Something that you touch and feel gives you a sense that you own it and probably you can show to others. That’s why the love for gold and real estate. These are also asset classes that have their own return cycles. For the last few years, both of these classes have not delivered great returns to the investor. These may be part of the portfolio, but not all of it.

Saving versus investment

A lot of people feel that they are saving enough without realising that money lying in their savings account is not an investment. You need to take corrective action in diverting those funds in right financial instruments so that your saved money grows well beyond inflation.

Financially illiterate

Understand ‘time value of money’ concept is critical. Often, we do not understand that growth in wealth is a long-term phenomenon. We either get involved in trading for short-term gains (turns into losses though) or don’t invest for long-term at all.

The language of products

In India, people are more comfortable talking in the language of investment products rather than their own requirements. This is precisely the reason that you get enticed by an insurance agent to buy an insurance product that delivers less than 5% return (ULIPs, endowment, LIC policies etc.). A better approach should be to reflect on your needs and accordingly evaluate investment products.

Advice for free

Everyone wants advice for free. If you fall ill, you always have a choice to buy over the counter medicine from a pharmacist or consult a doctor. Although the trend is changing, still a majority of Indians think that they get quality advice without paying anything.

Media knows

How will equity market perform in 2018? All the investment news channels forecast how will be the next year. Isn’t that speculative and not investing. Additionally, most of the retail investors would apply for IPOs to make listing gains. Think about it, IPOs are exit options for promoters, why would a promoter sell his shares for cheap?


When you hire a financial advisor, you outsource the job of money management to him/her. One of the value-add that a financial advisor brings to the table is to navigate you through the markets without getting impacted by the above-mentioned biases.

Planning for your child’s education

Planning for your child’s education

Good quality education is a priority for every parent but for anyone overseas education can be a deal-breaker. Even if you have sufficient funds to meet your retirement needs, it is extremely important to separately allocate the funds for your child’s education especially graduate level studies.

Here are few mistakes that parents commit while planning for Child’s education: 

Buying ULIPs

Protect your child’s future

As parents, these wordings in an advertisement may be hard to ignore. Emotions are used by Insurance companies to lure people. These policies often have an opaque way of sharing the charges and lock-in period. Additionally, the policy maturity amount may not be sufficient to meet your child’s future needs. Therefore, securing your child’s future with these policies is not recommended. 

Underestimating the education cost

The costs today are bound to increase in the future. Often parents think of the cost in today’s value. However, the cost of education actually increases more than even the general inflation in the economy. Considering this rise in cost of education due to inflation is critical when parents plan for their child’s future.

Inappropriate investment vehicles

Allocating funds in safe assets usually give a sense of security to parents. However, the real worth of the money does not increase after considering inflation. Therefore, investment allocation towards growth assets such as equity and real estate is very important.

Insufficient life cover

Your child’s future can never be secure until you are adequately insured. You must buy a term plan that insures you for the value of your child’s future goal requirement. If something were to happen to you, your child’s future goals will still be met.

Ignoring your own retirement

Putting your own future at stake is not recommended. Children’s future planning is one of the important goals, but it should not be looked upon in isolation. Let your child’s future goal be part of your holistic planning.


Parents who start late will have less time to save their money and may not be able to save enough for their child’s future goal requirement.

What you need to do

So what are the costs involved? It will depend upon where your child will go for his/her higher education. If your child chooses India over abroad education, costs could be drastically different. However, we suggest that you should plan with the assumption that you will send your child abroad for education. Later, if your child does not plan to go abroad, you can very well use those funds to meet any other financial requirement.

In today’s time, planning for $200,000 inflation adjusted for 5% p.a. is a reasonable amount of savings. You should not invest these funds in a high-risk category such as start-up funding, private equity etc.

Investments held should be viewed as a medium to long-term investment. More the time, better it is. 

Why you should have a financial adviser ?

Why you should have a financial adviser ?

In India, working with a financial adviser is still not a preferred way to manage personal finances. We get informal advice from mutual fund or insurance agents on various products. We rely on these agents because we do not want to pay for financial advice. We invest in the products and later regret our financial decisions. Bad financial investment decision often leads to dis-interest in financial markets. Then, we tend to prefer keeping money in just fixed deposits. 

A pleasant experience of financial market is critical to growing your wealth. You need to acknowledge the difference between an agent and a financial adviser. There are various ways you can deal with financial services providers:

Brokerage firms

Generally these companies offer mutual funds, PMS and direct equity. The primary reason these companies exist and grow is brokerage through distribution of products. 

Wealth Management Firms

There are numerous wealth management firms that operate in India primarily focused on clients who can invest more than Rs 2 crores. These companies primarily offer mutual funds and PMS. These firms also earn through brokerage.


Banks are major distributors of financial products. In fact any financial product manufacturer would first reach out to banks for pushing the sales of new offering. Most of the banks offer mutual funds and insurance products. However, banks also earn only through brokerage.

Mutual Fund/Insurance Agents

There are thousands of these agents selling financial products especially MFs, insurance policies, LIC etc. Again these agents also earn through brokerage. 

Financial Advisory Firms

As per the guideline of SEBI, any firm or individual who claim to be financial adviser, have to register with SEBI and get investment adviser license. These firms or individuals are regulated by SEBI and have regular audits. Additionally, these firms or individuals cannot make money from commissions, hence avoid conflict of interest with the client. 

Most of the brokerage houses, banks and wealth management companies present themselves to be advisors but they aren’t. Brokerage houses, banks and wealth management companies push financial products to earn brokerage and have no interest in client’s objective. These firms do not care about quality of clients but just care about ‘quantum of clients’. On the other hand, mutual fund agents and insurance agents cannot afford to be selective because of ruthless competition and hardly any differentiation. 

Select a financial adviser after thorough understanding of their processes and approach. Make sure that you get unbiased advice from the financial adviser. This is possible only when the source of revenue for the adviser is not linked with the financial product.

Why are you saving money ?

Why are you saving money?

Everybody wants to be ‘rich’ but very few have actually sat and thought through how rich they really want to be and what they need to do, to achieve financial freedom.

Circumstances and needs are constantly changing. A sound financial situation today does not necessarily foretell an equally rosy future.

  • A loss of income, even temporary can deplete your savings or leave you in debt.
  • An uninsured loss can wipe out your accumulated wealth.
  • Insufficient savings can force you into a reduced lifestyle post retirement.
  • Frequent or unplanned borrowings can leave negative money i.e. debts for future.
  • Poor tax planning can result in higher taxes, payable separately.

All this, combined with changes in your life cycle, needs and/ or external economic changes can make you and your future generations financially vulnerable.

You need to plan and manage your current and future income to meet your current and future needs / wants. These are also known as your goals or dreams.

People who write their goals are much more likely to achieve them. Sit down by yourself or with loved ones and try to imagine your future. Consider what drives you in your life and how that has changed over the years.

While I can’t tell you what you should want in life, the list of questions below can provide you with a fair idea of how you should start thinking about the future.

  • What milestones do you foresee in the future? starting a family, sending kids to college, buying a new home etc.
  • When would you want to retire? And with how large a corpus?
  • What are some of the other things that you may want to do in life?

Once you have a timeline of your goals, you will need to estimate how much money will be needed to meet them.

A portion of your current savings will need to be invested appropriately so that it grows to meet your future goals’ cost.

Make a list of all key expenses you foresee in the future. This will give you an idea of how to invest your savings.

How to select the right Mutual Funds ?

How to select the right Mutual Funds?

There are thousands of different schemes from various mutual fund schemes and selecting the best ones can sometimes get hard.

Most folks ask friends and family or research popular online websites to get the top fund recommendations and invest in the top-rated funds.

The biggest mistake that mutual fund investors can make, is selecting mutual funds only on the basis of past performance.

Then there are some who consider the star ratings given by various research agencies. These star ratings can be one of the factors to look at, but there are other important parameters that one should also consider before finalizing a mutual fund portfolio.

The most important step in selecting mutual funds is to first have an investment goal and timeline i.e. how long do you plan to stay invested in that fund to meet your goal.

A fund selection done without an investment goal may not give the best results. You should know the reason for your investment, how long you can stay invested and at what stage you will re-allocate / redeem before you make your first investment.

Once your investment objectives are finalized, you may evaluate a fund based on the following parameters:

1.) Performance Ranking

More than the recent or long-term performance of any scheme it’s ranking among peers is very critical.

  • Firstly, you must compare the mutual fund with its peer group.
  • Secondly, you must compare the performance of the scheme with its benchmark.

The fund, which has performed well in one quarter, may not perform well in the next quarter. Funds with a good long-term top quartile performance are far superior to a fund scheme, which has one top position and one bottom position.

2.) Total expense ratio

As a fund starts to do well it starts to attract a lot of investors, and as its assets increase it should keep dropping its asset management charges.

Look at well-managed funds with charges below 1.9% p.a. – there are many.

Though mutual fund’s total expense ratio has been capped by SEBI, still lower the fees, the better it is for you unless you get some extraordinary return by paying higher expenses for a specific fund.

3.) Fund manager tenure and experience

Fund managers play a very important role in the fund’s performance. Though managing a mutual fund is a process-oriented approach, the fund manager is still the ultimate decision maker and their experience and viewpoint count for a lot. You should know who the fund manager of the scheme is and what their past track record is.

If you find that due to change in the fund manager there is a considerable effect on the fund’s performance, which does not suit your risk appetite then you may decide to exit from that fund.

4.) Scheme asset size

The lesser the assets under management (AUM) in any scheme, the riskier it’s likely to be. This is because you don’t know who the investors in the scheme are and what quantum of investments they may have in that particular scheme. An exit by any big investor from the mutual fund may impact its overall performance and the remaining investors in a scheme will have to bear the impact. In schemes with larger AUMs, this risk gets minimized.

It is recommended to invest in 3-4 funds that match and/ or complement your investment objectives. This is to avoid dependence on any one fund and avert risks of market downturns.

In addition to these, there are some additional indicators, which you can look at if you are inclined:


This is a measure of a funds performance with respect to the index. If an alpha is 1%, it means the fund has performed 1% better than the market performance.


This indicates the level of volatility of a fund with respect to the market index. The larger the beta of a fund, the more volatile it will be.

Information ratio

The information ratio (IR) is a ratio of portfolio returns above the returns of a benchmark – usually an index – to the volatility of those returns. The information ratio identifies whether a manager has beaten the benchmark by a lot in a few months or a little every month. The higher the IR, the more consistent a manager, with consistency being an ideal trait. Conversely, the lower the IR, the less consistency.

Standard Deviation

This indicates how much the current performance of the fund is changing its past performance. A high standard deviation may not be a good indicator for the fund.

Sharpe Ratio

This ratio indicates the source of a funds performance and how much of risk the fund was exposed to, to get higher returns. The larger a fund’s Sharpe ratio, the better will be its risk-adjusted performance.

While you may shortlist mutual funds based on the above parameters, it’s a good idea to have a financial advisor on retainer who you can use as a sounding board to discuss potentially good and bad funds.

Why is it hard to save money ?

Why is it hard to save money?

The decision to save or not to save is always a personal choice. Everyone’s financial situation is different, and therefore not everyone is able to allocate the same percentage of his or her income towards savings. However, everyone should be saving money (even a small amount) on a regular basis.

Here are some of the reasons clients often tell us ‘why they cannot/or they think they do not need to save’.

There is always something in the market that needs to be bought.

You can always enjoy a better television or a newer car, but splurging on the latest models can be expensive and often unnecessary. We often see young professionals frequently upgrading their cell phones and that too on EMIs. Everyone wants the latest iPhone!

However, is it in your best financial interest?

Let’s live today and leave the worries for tomorrow.

This is probably the most common reason why people choose not to save money, and it is also probably the biggest financial mistake that anyone could make. Just because you have other financial priorities, such as travelling or buying new gadgets, doesn’t mean that you can’t save money for your future at the same time. The longer you wait to start saving, the more you will need to save.

I am young right now. I can start later.

This is another huge financial mistake, which a lot of youngsters make. Procrastination can be very costly.

For example, if you save Rs 5000 per month for 20 years at an interest rate of 15% p.a, you will accumulate ~Rs 75 lacs by the end of 20th year.

If you chose to start saving later and say you save for only 15 years instead, you will only accumulate ~Rs 33 Lacs. This is the power of compound interest which early savers and investors enjoy.

I will anyways leave everything when I die-So why bother with saving?

This is true, but no one can predict when he or she will die. If you don’t have sufficient savings to take care of your financial needs in your old age, you will have to depend on others (Would you want to be dependent on your kids!). You may or may not be able to lead a life of your choice.

I am too young to start thinking about retirement

If you have more years to grow your money, lesser is the amount you need to save.

For example, someone who is 45 years and wants to accumulate Rs 6 crores for his retirement (age 60 years) needs to save Rs 90,000 per month. Total investment during the 15-year horizon will be Rs 1.71 Crores. However, a 25-year-old has to save only Rs 4,000 per month to accumulate the same amount upon his/her retirement (age 60 years).

Get into the habit of saving as early as you can.