How to select your financial advisor

Selecting the right financial advisor is the key to successful investment. But the major problem facing everybody is how to select the right one. Well, here are the steps you can use to find the right financial advisor for yourself.

  • Check out different financial advisors. Visit different financial advisors
  • Get details about their experience, clientele, qualifications and the number of years in the industry.
  • Ask for references from all of them and talk to them
  • Find out the charges for the services
  • Find out how accessible he is.
  • Find out how frequently he plans to revaluate your financial plan. Once a year is better.

What budget 2011 means for you? – I

February 28th 2011 was the day when finance minister Pranab Mukherjee announced his budget for the financial year 2011-12. Here are some of the propositions announced and their impact on your personal finances.

  • Increase in tax exemption limits by mere Rs 20,000 and : This means you will be saving just Rs 2060 across all the income categories and a mere Rs 1030 for senior citizens.
  • Senior citizen age set at 60 years: This is good for you if your age is between 60-65, as previously the age limit for senior citizen was 65 years.
  • No tax for senior citizens whose income limit is Rs 5 lakhs above 80 years: Excellent news for senior citizens with annual income of Rs 5 lakhs and whose age is more than 80 years, as they don’t have to pay any tax on their income.
  • Insurance products become expensive: FM has increased tax on insurance products that are primarily meant for investment. While originally you paid 1% as tax on insurance premium, now it has gone up to 1.5%. This means you will get lower returns from your insurance products. Also if you have invested in ULIPs, be ready to shell out more. Till date, you paid tax only on the fund management and mortality charges. But now you will also end up paying tax on allocation charges as well as administration charges.
  • Tax benefits on infra bonds to continue: Till now, you could save extra Rs 20,000 in addition to Rs 1 lakh by investing infra bonds. You can continue to enjoy this benefit even further.
  • No need to file tax returns if your salary is up to Rs 5 lakhs: This will bring cheer to plenty of salaried people, whose income lies between Rs 1 lakh to Rs 5 lakh. But if you have income from other sources like dividends, rent, interest etc., you’ll have to inform about the same to your employer. He will then issue you with a Form 16, which the government will regard as IT return.
  • Introduction of Sugam: Sugam is the new form the government plans to introduce in order to simplify the procedure of filing your tax returns. It is being done to promote electronic filing of tax returns along with payment.  

 

This is all about the effect of budget on the direct taxes. Next time we’ll see its effect on indirect taxes.

5 tips for successful tax planning

The season for tax planning is already upon us. 31st March is the deadline by which we all have to file our tax returns. Unfortunately most people wait for the deadline to loom large over their heads before they  start their tax planning. In the process, what they do is they invest in the first available tax saving avenues without looking at the returns generated by those avenues. As a result, while they do save tax, they end up getting poorer. So if you want to enjoy the best of both the worlds, here are some tips you need to follow.

  • Find out your requirements. Are they short-term or long-term? If it is short-term, then your better options are post office savings, ELSS and government bonds. For long term savings, you can opt for insurance policies, PPF tax-saving bank deposits and infrastructure bonds.
  • Are you looking for high returns? Do you have a high risk-taking ability? Then ELSS and ULIPs are your best bet. Otherwise stick to good old PPF, other insurance policies, bank deposits and bonds.
  • Are you looking to make a single payment at a single shot or make frequent payments? In case of the latter, opt for PPF or ELSS, where you can make payments at regular intervals. If not, go for bank deposits, bonds or post office deposits. However when it comes to investing at periodic intervals, ensure you complete the entire investment before the year end in order to avoid paying the tax.
  • Get all the knowledge abou the products you are investing in. E.g. many people think ELSS and ULIPs need to be held only for 3 years. But this is not true as these products are dependent on the markets. So if the markets are high at the time of investing, it may so happen they may have crashed at the end of the holding period. So at that time you may find you have been stting on the loss and so may have to hold on to the investment for a long time.
  • There are other factors that should be considered when deciding on the investment. E.g when selecting ELSS or ULIPs, you need to take into account the past performance and the fund management experience. In case of ULIPs particularly, charges play a determining factor in deciding the selection of ULIPs.

 

Once you can do that, you can get an investment mix offering you high returns.

Continue reading 5 tips for successful tax planning

Tips to lower your car insurance

Can you imagine a life without a car in modern times? Today having a car is a must for everybody. But owning a car also comes with its share of expenses. One of the major expenses associated with a car ownership is the car insurance. As it is an expense, it makes sense to reduce your premium amount. Here are few tips to lower your car insurance.

• Avoid certain cars like Qualis, Sumo and Tavera as they are used mostly for commercial purpose. Hence they attract higher premium for car insurance, even if you are buying them for your personal use.
• Always go for petrol engine, instead of diesel, LPG or CNG engine, as they attract 10-15% more premium. Similarly engines whose body is made from fibre have higher premium than those made by the metal.
• Include safety devices like seat belts, air bags etc. These devices will not only save you in case of accident, but will also lower your insurance premium.
• Reduce the number of accessories like audio, systems, air conditioning fitted to your car. These accessories do increase your insurance premium.
• Your profile also pays a vital role in determining your insurance premium. If you have ever been in an accident, your premium amount will go up.
• Shop around for good bargains, as different insurers offer different rates for the cover.
• Imported cars attract higher premium than the indigenous cars. This is because spares for imported cars are very expensive.

These tips will go a long way in saving you money on your insurance premium.

Impact of regulatory changes on your investments

The last couple of years have seen a flurry of regulatory changes affecting the various Indian investment products. These changes are sure to impact all of us. So it is essential for you to understand what these regulatory changes mean for you. Here are some of the major changes impacting various investment products.

Regularization of ULIPs

  • Reduction of charges: Before the ULIP charges were capped, the insurers charged exorbitant charges on these products. Hence it took a long time for the  recovery of these charges. But now IRDA has put a limit on these charges. This means you can recover your charges more quickly.
  • Spreading out of charges over the policy term: Previously these charges were deducted during the initial 3-5 years of the product. As a result, your corpus decreased significantly. But now, the final amount goes up significantly, as more amount is invested initially.
  • Hike in lock-in period: The the lock-in period for these products has gone up to 5 years from the earlier 3 years. This is a very important change as equities tend to give better returns over a long period, and most ULIPs are equity-based products. So you tend to get higher returns.
  • Guaranteed return on pension scheme: The pension schemes from insurance companies are now set to offer you a guaranteed return of 4.5%.
  • Limitation on surrender charges: With this move, you will get higher amount, if you decide to surrender your policy prematurely.

 

Revised guidelines for PMS

  • Minimum investment for PMS to be fixed at 5 lakhs: Previously, PMS managers would accept clients even though they couldn’t invest Rs 5 lakhs. But with this new SEBI circular, the minimum amount for PMS account has been fixed at Rs 5 lakhs.
  • PMS Managers to charge fee only on the excess profit generated: SEBI has said that the PMS Manager can charge their fee only on the excess profit generated over the previous year. E.g. if you invest Rs 5 lakhs, which after a year becomes Rs 8 lakhs, then you pay fee only on Rs 3 lakhs and not on the entire corpus. This saves you money in the long run. Moreover this fee will be levied at interval exceeding a quarter. This will safeguard your returns.

 

Abolishment of entry loads in mutual funds

  • This means lesser churning, fewer NFOs and no mis-selling. It means investors gain.

Tips to select the right financial advisor

The key to investing successfully is to choose the right financial advisor. A good financial advisor can help save you a lot of money and get better returns with your money. Here are some tips to select the right financial advisor.

  • Trust: You and your financial advisor should have mutual trust. This is very important as different advisors tend to give different recommendations. So it can easily mislead you. It is only when you have mutual trust, that you can manage to get the best returns on our investment.
  • Willingness to serve: Your advisor should be available to you whenever you want. He should have entered into a service agreement with you. This will assure you are in safe hands.
  • Need assessment: The advisor should be able to understand your needs and your risk profile before making any recommendations. If you are a low risk client, and you are advised to invest in risky investments like equities, then you are better off avoiding the advisor.
  • Track record: Get references from your friends and relatives about the performance of your advisor. Talk to the advisor’s clients personally before actually hiring him.

 

These tips are common sense but are essential for your financial health.

Tips to enjoy a vacation on budget

With holiday season fast approaching, everybody is planning to take time off for their annual vacations. However with the inflation rate going up, everything including the holidays has become costly. However this doesn’t mean you need to do away with your vacations. Here are some tips for having an economical yet enjoyable vacation.

  • Start planning well in advance. E.g. if you are planning to go on a vacation in May, it is advisable to start planning your trip right from February. This will help you get the best deals in hotel bookings, train/air tickets and visa processing if needed. Also you won’t have to run around to make the arrangements at the last minute, thus inadvertently settling for any available tour package.
  • Use travel cards. These cards will simplify your life when you are traveling by letting you pay for your hotels, purchases etc when traveling. Moreover as these cards are pre-paid, they are not affected by the fluctuations in the exchange rate, as is common with normal debit/credit cards, where the exchange rate varies on the day-to-day basis.
  • Buy travel insurance.  This will pay your hospital bills if you fall ill on your travel. Similarly if you lose your bags while traveling, you can get reimbursement for the loss of bags. This will ensure you are not inconvenienced during your trip.
  • Use economical travel passes during your trip. Many countries offer special passes that allow you to make unlimited trips for a certain period by paying a nominal amount. This will work out more economical than using the cabs and paying for the trips individually.
  • Select the hotel with lower rating. These hotels usually offer you all the amenities at the economical rates.

 

With these tips you can get a great trip on a budget.

How to decide whether to purchase insurance from an insurance agent or your bank?

Today banks have ventured into other financial products, besides the traditional banking. This includes insurance as well. So you are now in a dilemma whether to buy insurance from your bank or an insurance agent. Well, here are the pros and cons of both the methods.

Pros:

  • Convenience: Your bank offers you lot of convenience like minimal paperwork and direct debit as they have all your personal data, and access to your bank account. This is not possible with an insurance agent.
  • Consolidated portfolio: You can get a consolidated overview of your portfolio, including your savings account, loans, insurance and investments. This helps you get a clearer picture of your finances, which is not possible with an insurance agent.
  • Customized products: Nowadays, insurance companies are offering insurance products specifically designed for the bank’s customers. This will help you get a good deal. You will not get any such deal with an insurance agent.

Cons:

  • No personalized service: The bank will not come over to your door to fill the forms and collect payment. It will just set up a direct debit on your account and it is your responsibility to ensure that there are sufficient funds in your account.
  • Lack of trust: There is a good rapport between you and your insurance agent. This is not possible in case of the bank.
  • Poor range of options: Many banks offer limited range of insurance products. But an insurance agent can offer you a wide array of products.

So weigh the pos and cons of both the alternatives before buying your insurance.

How to invest for people in their 20s

Raju is an engineering graduate working in an MNC. He earns Rs 50,000 a month. His company has given him a platinum credit card that allows him to spend as much as he desires. Raju takes full benefit of this card and spends all his monthly income on clothes, mobiles and eating out. He has totally ignored the concept of investing.

So if you are in this situation, here is how to invest if you are in your 20s.

  • Buy a health insurance: Today health care has become expensive. A simple visit to a doctor can set you back by as much as Rs 500. Hospitalization, medicines, medical examinations have all gone up. This is where having a good health insurance helps. Besides paying for any health expenses, you’ll also save money on premium, if you start early. It also gives you tax benefit under section 80-D.
  • Invest in equity mutual funds: Equities are the best bet to make money and become wealthy over a long haul. Also earlier you start you can get more by investing smaller amounts due to the power of compounding. Moreover in your young age, you have higher risk appetite, thus allowing you to go for aggressive investments. But a word of caution: DON’T GAMBLE OR SPECULATE.
  • Buy your own home: Earlier you buy your home, sooner you’ll find you have exhausted repaying the loan. E.g. if you take a home loan of 20 years, when you are 25, you’ll find you are debt-free by the time you reach 45. This means you’ll be debt-free by the time you retire.

These are some of the useful investment option for people in their 20s. follow them and you’ll grow healthy and wealthy in your old age.

Why avoid pension plans for retirement?

Today it has become common place for insurance companies to target unsuspecting customers with their pension plans. However not many of these gullible customers know that pension plans from insurance companies. Here is why.

  • While your investment fetches you tax deduction, you end up paying tax on the amount you receive as the pension.
  • High charges means just a small portion of your money actually invested.
  • You cannot withdraw the money even if your investment performs poorly.

 

So how should you invest your money to build a sizeable nest egg for retirement?

Here are some tips.

  • Diversify your investments across PPF, bank FDs, debt and equity mutual funds initially. Then as you near retirement age, transfer your equity investments to debt instruments for capital safety and to get regular income. Start by invesing 80% of your portfolio in equities, then make it 50% when you reach mid-40s and then keep 20% in equities when you are a couple of years away from retirement.
  • If possible, invest in a property to get a good rental income after retirement.
  • But under no circumstances should you touch these funds. This is particularly true for equity funds, which will give you compounded annual growth rate of at least 15%.
  • While safety of your capital, don’t shy away from taking some risks. Invest in companies like Tata companies, HDFC and Infy to get good returns on your capital without risking your capital.
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