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21

THE TIMES OF INDIA, MUMBAI


TUESDAY, APRIL 5, 2016

Set Financial Resolutions In The New Fiscal Have a contingency fund,


Track expenses, review portfolio on a regular basis for a smooth investing experience
adequate health cover

t the beginning
of every new
year, we tend to
promise
ourselves to accomplish a handful of goals by
the time the year ends. A lot
of time we end the year a satisfied
person,
having
achieved at least a majority
of the goals. At times, however, we fall short in meeting
those targets and some time
we fall short miserably. However, even if you fall short,
never stop having a handful
of practical and achievable
New Year resolutions.
As we start the financial
year 2016-17, below are a set
of financial resolutions
from two experienced financial planners which any
investor can adopt. Through
the year till March 2017, if
you are able to meet some of
these targets, after meeting
some of the challenges of daily life and also human emotions which may make us lose
track of these resolutions,
as Naresh Pachisia, MD, SKP
Securities puts it, you are
most likely to have a satisfying year as an investor. And
according to Mukund Seshadri, co-founder, MSVentures Financial Planners, use
apps and the available technology to keep track of your
expenses because slowly but
surely expenses are emerging to be the backbone of financial planning.
Below each of the resolutions there are boxes to help
you keep track of your
progress through the next
twelve months. As you
achieve one, fill in or tick the
relevant box and at the end
of the year aim to feel good
by ticking more boxes than
are left unmarked.

MFs:
PPF:

Item 2:
Item 3:

Set financial
goals: If you
have not done it
already, spend
some time and
find out what
all should be
your financial goals in
life. These
goals could short term
in nature, medium term or
long term in nature. (MS)
Short term:
Medium Term:
Long term:
Where do you stand now?:
Find out all about your current investments including
mutual funds, EPF, PPF, FDs,

I HAVE RS 4 LAKH THAT I WANT TO


INVEST IN DIFFERENT MUTUAL FUNDS.
SINCE INVESTING ALL OF IT AS A
LUMP-SUM IS RISKY, I INTEND TO
SPREAD THE INVESTMENT OVER A
PERIOD OF TIME. OVER HOW LONG A
PERIOD SHOULD I SPREAD THE
INVESTMENT OF THIS AMOUNT IN
ORDER TO OPTIMIZE RETURNS IN THE
LONG RUN (10 YEARS)?
Ali Mallick, by email

Shailesh Kotecha
replies
ts a good
decision to
spread your
investments over
a period of time
when you have a
lump sum
amount to invest.
This way you can
lower the risks
and average out your cost of
acquisition over a period of time. You
should first put the whole amount, Rs
4 lakh, into a liquid scheme of a good
fund house and then set up a
systematic transfer plan (STP) to one
or more equity schemes of the same
fund house. I would suggest you
divide your Rs 4 lakh into 12 monthly
STPs, which is about Rs 33,333 per
month, so that each month this
amount is taken out of the liquid
scheme and invested in the equity
scheme(s) that you have selected.
Since your time horizon for investing
this amount is 10 years, I would
suggest you invest 60% of the money
(Rs 20,000 per month) into a large cap
equity scheme and the balance 40%
(about Rs 13,333 per month) into a
mid-cap scheme. After you remain
invested till the end of the ninth year,
please remember to slowly transfer
the corpus that you have in the equity
schemes into a liquid scheme. This
way again you will lower your risks to
your equity portfolio from a sudden
slide in the stock market in the 10th
year of your investment. In the last
year, even if the stock market slides,
your total corpus will be hit much less
than if you wait to redeem the whole
amount at the end of the 10th year.
STP: An STP is a process in which a
fixed sum of money from one scheme
of a mutual fund house is transferred
to another scheme of the same fund
house at fixed intervals. In your case,
the STP will be from a liquid scheme
to two equity schemes.
Shailesh Kotecha
runs Clarity Agencies, Amreli, Gujarat

EPF:

Bank FDs:

Life insurance:

Item 1:

INVESTOR QUERY

insurance policies, bank accounts etc. Its very important to have a clarity about
where all you have invested.
(MS)

RESOLUTIONS FOR
FY2016-17
Needs vs Wants: There are
things which you and your
family may want but they
may not be needed
for the family.
Identify
at
least three
items
of
avo i d a b l e
expenses in
your family,
which you
want but do not
need. This will
help you to save and invest
more. (NP)
ILLUSTRATIONS: DEBASISH SARMA

TIMES NEWS NETWORK

Keep
a
watch on
expenses: Use
technology or any
of
the
conventional methods to
track your expenses. Once
you know your expenses,
along with your assets and liabilities, 60% of your job relating to financial planning
is done. (MS)
Expenses tracked through
apps/data sheet/keeping a
diary:
Have an asset allocation
plan: Create an asset allocation plan to meet each of your
financial goals, starting with
mapping existing investments with goals and assessing how much more
you need to invest regularly (like SIPs) to meet
your goals. (NP)
Review Portfolio: Monitor
your portfolio performance
regularly vis--vis your financial goals, take corrective
actions as required and maintain discipline of regular investments without becoming

NEXT EDITION

3 years:
Lock-in from
the date of
investment
for tax
benefits

No maximum
investment limit

Review in March:

Up to Rs 1.5
lakh:
Tax savings
per annum
under Section
80C of Income
Tax Act

Nil: Tax
liability on
corpus if
withdrawn
after lock-in

DEMYSTIFIER
While investing through an SIP, at what NAV the
investments are made? Is it at a fixed NAV or it varies
through the SIPs tenure?
Abhinav Chaitanya, by email
Swatantra Kumar answers: When you invest

in a mutual fund scheme through an SIP,


the investments are done at the net asset
value (NAV) on the day each investment is
made. It is not done at any fixed NAV. For
example, if you have a monthly SIP of Rs 5,000 in
an MF scheme which is done on the 5th of every
month, then your Rs 5,000 will be invested at the
NAV of scheme that is declared by the fund
house on that day. Say if the NAV of the
scheme on April 5 is Rs 20, you will get 250
units of the scheme while if the NAV
rises to Rs 25 by December 5,
you will get 200 units.

Take a life cover: Ensure


that all the bread earners in
the family have sufficiently
protected their dependents
from calamities of nature by
taking life insurance cover,
as per their Life Time Value.
(NP)
For Person 1:
For Person 2:
Have a health cover: Ensure
that each family member is
sufficiently covered for any
medical exigencies. (NP)
For Person 1:
For Person 2:
For Person 3:
For Person 4:
Prepare a will: Make sure
all the adult family members
have made their Wills.
By Person 1:
By Person 2:
By Person 3:
NP: Naresh Pachisia
MS: Mukund Seshadri

Warren Buffett,
celebrated investor, one of
the richest persons in the world

1.5%-2.75%:
Cost per
annum

Mukund
Seshadri

victims of human emotions


of greed and panic caused by
volatility in financial markets. (NP)
Review in September:

In the business world, the


rearview mirror is always
clearer than the windshield.

Can a tax saving mutual fund scheme, that is Equity Linked Savings
Scheme (ELSS), be used to create a retirement corpus? Financial
planners and advisors believe this is one of the best and the most
cost-effective solutions to creating a corpus for retirement.
Here are the some aspects of the same:
100%: Of the
corpus can
be withdrawn
after the
lock-in period

Naresh
Pachisia

GURU SPEAK

April is the month when a


large number of people get
their annual bonuses. In our
next edition we will discuss
how to invest this lump sum
amount for long term wealth
creation

ELSS FOR
RETIREMENT CORPUS

Rs 500:
Minimum
monthly
investment

CASE STUDY
I am 40 years old, working with an MNC, drawing Rs 11 lakh annually. I have a 10-year old
son and a 6-year old daughter. My investments are:
Investments: Four SIPs of Rs 3,000 each, two in tax saver funds for past one year and two in
other open ended equity schemes for past four years. Total current value of these investments is about Rs 5.3 lakh. I have a risk cover plan worth Rs 50 lakh, for which I pay a yearly
premium of Rs 8,000. I have another investment in a ULIP, current value is Rs 2.10 lakh after
nine years, for which I dont pay any premium anymore. I have an LIC policy with a yearly
premium of Rs 8,000. I get Rs 20,000 every four years from this policy. I got this amount
twice, will get one more and thereafter probably Ill get another Rs 1 lakh.
Goals: Childrens higher education and marriage, a house of our own and retirement.
Mohammed Iqbal
Naitik Shah
replies:
As per the
information and
your
requirements,
here are my
recommendations:

is your family expenses {Rs


11,00,000-(Rs 1,44,000 SIP +Rs
16,000 life insurance + Rs
1,15,000 approximately as
taxes) = Rs 8,25,000 per
annum} as a thumb rule you

Contingency Fund: You


should have at least three
months of salary as a
contingency fund. So
surrender the ULIP,
presuming it doesnt provide
you any insurance cover. You
can transfer this fund in a
liquid fund for any
contingency requirements.
Health Insurance: Even if
your company provides
health insurance cover to
your whole family, you
should have a separate
health insurance cover. In
case you change your job and
new employer doesnt
provide this benefit your
family, you will not be
without a health insurance
cover. Also in the absence of
it, you may need to stretch
your savings.
Life Insurance: Since you
have not mention your
monthly family expenses, I
am assuming whatever left
after investments and taxes

should have 8-10 times of


your yearly expenses as
insurance. So I
recommended you to buy
some more term insurance
to accommodate the same.
Goals
Higher Education:
I assume here a two-year
residential post-graduate
programme at a premier
institute in India will cost an
average of Rs 12-15 lakh.
Considering inflation in
education at 8-9% in India,
your son would require Rs 28
lakh and daughter Rs 35
lakh. You can start an SIP of
Rs 10,000 for your sons
higher education and an SIP

of Rs 8,000 for your


daughters higher education.
Marriage and own house:
For this you need to have
some approximate amounts
in mind, the current rate of
inflation for such costs, and
then device a plan. The same
for your house, where you
also need to be clear about in
how many years you want
your own house.
Retirement: Assuming your
current family annual
expenses as Rs 8.25 lakh,
your retirement age as 60,
life expectancy as 80,
inflation at 6.5% constant
throughout your life, your
annual family expenses will
be Rs 29 lakh when you
retire. We assume 10%
return on investment during
your retirement years, you
will require Rs 1.2 crore as
your retirement corpous.
Considering 12% return on
your equity SIP you need to
have SIPs of Rs 12,000 per
month for your retirement,
which you currently have. So
for your retirement
requirement if you continue
the same SIP till your
retirement, you can meet
this goal.

Naitik Shah runs Shah


Investment Consultants,
Bhavnagar