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.
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.
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
We all know that investing in mutual funds is the key to getting rich. But with SEBI doing away with entry load charges, many mutual fund brokers have stopped dealing in mutual funds, as they would get their commissions from the entry loads. Instead now it has become mandatory for them to get their fees from their customers. But since they had never actually looked after their clients’ needs and since India never had the culture for paying for the investment advice, the brokers lost their source of their income.
So if you want to invest in the mutual funds, and don’t have time to make frequent trips to the fund house, you can opt for online option. Most mutual funds have tie-ups with many leading bans (except cooperative banks), to allow their customers to invest in their numerous schemes. In fact today, you can do all those things online for which you had availed of the broker’s services.
Now if you want to start investing online here’s how to go about it.
- If you are an existing investor: Then in that you have already completed the formalities to open the account. You just need to apply for the PIN, to get online access. Most of the fund houses have a tie-up with CAMS to handle their customer service requirements. You can visit the CAMS site and get all the necessary details. Once you get the PIN, you can login on the fund’s site to do the transactions.
- If you are a new customer: Then you need to open an account. You need to fill the account opening form, submit a cheque for the investment amount along with the PAN card and KYC. The cheque will vary from scheme to scheme, starting from Rs 500 for tax saving mutual funds to Rs 1 lakh and above for some liquid funds. With effect from 1st Jan 2011, it has become mandatory to submit the KYC. If you don’t have it, the fund house will do it for you, free of cost. Now when filling out the form, you can select for online option. In that case, you will get the PIN once your account is opened
After you get your PIN, you are all set to invest online.
We are all familiar with the SIPs in the mutual funds. They allow you to stagger your investments in the stock markets and let you benefit from the market volatility. Now brokerages have also started offering SIPs in direct stocks in the direct equities on the similar lines. But are these SIPs safe? Should you go for them? Well, here is a low down on these SIPs.
These SIPs like those of the mutual funds, let you buy stocks in small amounts. This can be very good strategy in case of expensive stocks like BHEL of Infosys. Now if the market crashes at the time of your SIP installment date, you can buy more stocks of these companies. So the returns you earn in this way are much higher than what you would normally earn by making a lump sum investment in the stocks.
But the problem arises if the market goes up drastically. In case of mutual funds, it won’t make much difference. But in case of direct equities the price of a stock can go as high as Rs 100-200 within a month. This will affect your investments as you will get smaller number of shares in this instance.
Also your stock selection should be perfect. If you had opted for SIP in stocks like RCom or DLF, you would have lost money. Hence it is essential for you to be aware of the fundamentals of the stock.
Lastly, it is costlier to go for SIP in stocks as you have to pay brokerage on each purchase. Besides you also have to pay for the demat charges. Hence you should be very careful when going for SIPs in direct equities.
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.
Rohit and Priya were a working couple. Rohit was an engineer and Priya a manager. This made them a high income couple. They ended up paying a lot of tax. So how could have reduced their tax? What steps should they have taken to lower their tax liability?
If you are in this position, follow these tips to lower your tax liability:
- Make smart use of investments If you and your spouse fall in different tax brackets, it is important that the one who pays higher tax should claim tax deductions, if the investments are made jointly. This would lower the tax liability. E.g. if you and your spouse have invested in PPF, and you fall in the higher tax bracket, then you should claim the tax deduction.
- Opt for joint home loans. If you don’t have a home or want to upgrade to the bigger home, apply for a joint home loan. This will let you claim a principal repayment of 1 lakh each and 1.5 lakh each on the interest repayment.
- Use the benefit of trust. If there are kids involved, form a separate trust for each of them. This will allow them to benefit from the income tax deduction under section 164 of IT Act. They can also create trusts to donate money to their favorite charities, deities etc.
- Design a HuF to reduce the tax payable on the gifts received during the wedding. Both the partners should take this step.
- Let the person in the higher tax slab withdraw money from the investments. This will lower his taxable income.
Follow these tips and lower your income tax bill.
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.
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.
With the stock markets reaching dizzying heights, stock prices of many top companies have become unaffordable for many small investors. In such a situation, these investors have just 2 options: either wait for the markets to crash, which can be a very long wait or buy when a company goes for a stock split.
What is a stock split? How does it benefit small investors? In a stock split, the total number of free shares of the company is divided into bigger number of shares, without impacting the shareholder’s equity or the stock’s overall market value. E.g. if the company announces 5-to1 stock split, it means that for one share of the company that each shareholder holds, he now gets 5 shares. He doesn’t have to pay anything to avail of these 5 shares.
Also the market value of the share will be divided by 5. E.g. if the market price of the share is Rs 1000, the new market price of the share now becomes Rs 200. Moreover the company’s market capitalization now becomes 5 times it original market capitalization. The company can achieve this without diluting its equity.
Normally companies take this step if they think that the price of their share has gone so high that many small investors are reluctant to pay the price. With this step, the company brings the stock price within the reach of ordinary investors. HDFC took this step some time back.
An investor gains by buying the shares of good companies at low prices, as stock split doesn’t affect the company’s performance. However it is important not to get swayed by the stock split when making investment decisions. Instead it is crucial to focus on company performance, management reputation, company’s growth prospects, future plans and its position vis-à-vis its competitors.