Euro Crisis: Impact On India

The adage that America sneezes and the world catches flu held true in 2008.It was the huge subprime crisis in the US that triggered the last recession and engulfed the world; this time around it is the countries in Europe which are sending shivers. Enough has been already spoken and written about the Euro crisis and its causes, but my concern is with the impact it has on us.

Firstly it’s affecting us through the monetary route as euro is losing value, dollar is becoming more expensive. This, in turn, means Indian currency is losing value against dollar. Our large trade deficits, resulting from imports being far greater than exports, have made the things worse as the trade is funded with large buying of dollars. One of the main reasons for the last petrol price hike was the fall in rupee making imports costlier.

Secondly, hike in the interest rates by the RBI as a counter inflationary measure has already jeopardised Indian industry and led to a slowdown in credit off take from banks. The purpose of taming the rising inflation was not served but it led to a further slowdown in investments and industrial growth. Growth in industrial production slipped to a 21-month low of 3.3 per cent in July 2011. The country’s economic growth also moderated to 7.7 per cent during the April-June quarter this fiscal, the slowest growth in six quarters.

The market has already slowed down. When the economic growth slows down, a country also becomes unattractive for investment. No wonder the foreign direct investment (FDI) in the country has dropped significantly in the last few months and the stock markets are seeing flight of foreign capital as the FIIs are selling their holdings in hoards. A slower growth would mean lower asset prices and lower income growth. On the positive side, the commodity prices will come down. A beginning perhaps has already started which will bring down inflation and may allow RBI to cut rates. Lower rates will help demand and may allow growth to stabilize. Investors in equity and equity-related products will have to be very careful of what they are buying, while domestic debt investors may choose to lock into higher yielding safe products as interest rate may fall sharply. Now in such a scenario what should an investor do? My sincere advice is to remain invested. However should you decide to buy or sell; here are some simple rules which should help you in this regard.

1. Do not wait for the highest price.

Obviously you would want the best possible price for your shares but how would you know that a particular share has reached its peak? Sell as soon as you have made adequate profits on your investments. Most successful investors get excellent returns by buying and selling in intermediate range prices.

2. Sell a share when your target price is reached.

When you buy the shares of a particular company, you do so with a certain goal in mind. For example you may have bought some shares with the intention of doubling your investment in two years. I suggest you sell the shares the moment you reach, or cross your target. You may fee that you have missed out on the opportunity of making more money if the prices continue to rise; however, you should also keep in mind the converse possibility.

3. Once you realise you have made a mistake – sell!

In such a situation sell your shares immediately, even if it means incurring a substantial loss. There is no point in holding on in the vague hope that things may eventually improve; wishful thinking is not the way to get rich in the stock markets. Understand the importance of cutting your losses.

4. Make use of P/E ratio to assess share prices.

The price earnings ratio (P/E) expresses the relationship between the market price of a company’s share and it’s earning per share. In other words it’s a reflection of the market’s opinion of the earning capacity and future business prospects of a company. Companies which enjoy the confidence of the investors and have a higher market standing usually command high P/E ratio.

5. Check previous year’s highs and lows

The highest and the lowest prices recorded by a particular share in the previous year are helpful in providing a frame of reference for judging its current price. If you pick up a sound growth share at around its previous year’s lowest price or even at previous year’s average price then chances are that you are buying it at the right price.

6. Understand booms and recessions.
Booms and recession are cyclical phenomena; neither lasts forever. A boom means that the economy has over extended itself and a correction in the form of recession becomes due in order to restore the balance. A boom is the time to sell the shares and a recession is the appropriate time to buy at cheap prices. At such times most shares are grossly under priced, so almost any share you buy will give you an excellent return on investment once the economy pulls out of the recession. More on this would follow later; till then happy investing!! Stay Blessed!!

Reverse Mortgage: The Loan That Pays You!

Mrs. Sharma is a 62 yrs old widow living all by herself in a house built by her husband but the pension that she gets is not enough to bear her livelihood expenses and she hates to ask for the financial help from her children. Getting into old age without proper financial support can be a very bad experience. The rising cost of living, healthcare, other amenities compound the problem significantly. No regular incomes, a dwindling capacity to work and earn livelihood at this age can make life miserable. A constant inflow of income, without any work would be an ideal solution, which can put an end to all such sufferings. But is it possible?

 According to Oasis (Old Age Social and Income Security Project) report, only 4% Indians are financially independent at the age of 60; and 90% of our senior citizens live in poverty. Old age can be very challenging or rather miserable when there is no support from any source.

I strongly believe that creating a nest egg for a comfortable retirement is absolutely necessary and sooner one starts better it is; however, the fact is some people think everything will ‘just turn out ok’ and they make no concentrated effort towards planning for their retirement. On the other hand, it may not be a feasible thing to do for many; who have other loads of expenses.  Does it mean one should lead a life of penury and be a popper in the sunset years? No certainly not. Reverse mortgage is the silver lining in the dark cloud; and is especially useful if one has not saved enough for the retirement and for people who are brick rich but cash poor.

If you are looking for a regular tax free source of regular income after retirement you don’t have to look beyond the four walls of your house. Reverse mortgaging your house can get you a regular income in your old age. Banks are willing to give loans against property to senior citizens. In return, the bank becomes a part owner of the house. In this way, cash-strapped senior citizens can unlock the value of their property without actually selling it.Though the concept is very common in developed markets, reverse mortgage has not picked up in our country where real estate also has an emotional value. People love their homes so much that they cannot bear the thought of selling the property. 

It's time to get rid of this misconception about reverse mortgage. If an owner puts up his house for reverse mortgage, it does not mean he has sold it. He has merely taken a loan against it. The property is revalued every five years, and one can expect a higher income after the revaluation of the property as and when the value appreciates. After his death, his legal heirs will have the option to either repay the loan along with the interest and regain the property or let the bank sell it and give them the proceeds after deducting the borrowed amount.

This is how reverse mortgage works:

It’s opposite of home loan; instead of paying the EMI the person gets the lump sum or  monthly / quarterly / annually pay out from the Bank. The lump sum can be deposited in the borrower’s bank account and can be withdrawn as per requirement. The owner can borrow up to 60% of the value of the property; and since money received is a loan, its tax free. And the property is revalued every five years; one can expect a higher income after the revaluation of the property.

After owner’s death his heirs will have the option to repay the loan along with the interest and regain the property or let the bank sell it and give them the proceeds after deducting the borrowed amount. Only senior citizens can avail of reverse mortgage and they should be living in the house that is being mortgaged. Don’t compromise on the quality of life. Stay Happy!! Stay Blessed!!

Some Financial Tips for the Newly Weds

So you have just tied the knot and might still be basking in the excitement of your special day. But once your honeymoon is over, it's time to sit down and find out what each other's more substantive financial goals might be. Because one of the most critical changes you encounter after getting married is the financial reality. Single income can convert to double, but so can the debts; buying assets may become easier, but insurance liability could increase; your spending or saving habits could be a disastrous mismatch, but your long-term goals may be the same.

While it's not easy to find a snug financial match, it's not impossible to home in on feasible solutions either. These can work for or against you depending on how you deal with them. You not only need to harmonize the different financial ideologies and habits that you bring into a new relationship, but also streamline your individual finances in a way that you can work towards the combined goals. . Here we take a look at some of the important things newly-weds need to consider while preparing a financial plan:

1. Reveal your cards

My money, your money; everybody is possessive about his or her money. But as a couple, this equation changes.  It’s important to talk about your finances; preferably even before you get married. So be it your income or expenses, savings or debts, liabilities or assets, proclivities or aversions, habits or cravings, lay them all on the table. List out your outstanding debts like car loans or credit card bills and assets like jewellery, real estate or stock investments. Talk about your attitude towards money, your values, what you plan to do with it after marriage. While you should retain your individual bank accounts (this is especially necessary from the point of view of convenience in paying tax if both the partners are working), you need to open a new joint bank account with an initial deposit equivalent to the wedding receipts in it.

2. Managing Household expenses

  

Both the partners need to work and to arrive at any conclusion, the newly weds should take into account all the things impacting their life, as there are lots of things and issues which determine this factor. Another important thing to do is to make a list of household expenses (regular as well as one-time) that you expect to incur. You are just beginning to share your life with your partner. So it is advisable to add a bit extra to the initial estimates.

3. Frame a budget, fix the goals

If, after the revelations and discussions, you have not already set your goals, it would be the next logical step. Frame your short- and long-term goals in accordance with your priorities and earning capacities. So whether you plan to buy furniture, car or houses, establish a time frame. It is imperative to describe each long-term goal in financial terms in black and white and they should be reviewed atleast once a year. You should also discuss the financial implications of having a child, savings required for his/her education and marriage, vacations and, of course, your retirement. It's never too early to start planning and saving for such goals because the compounding effect of investments works in your favor.

4. Risk Management

After marriage one needs to review one's coverage to take adequate life cover in a bid to protect one's spouse and family from the risk of premature death. If the spouse is working, then her income earning capacity also needs to be protected and if she is a housewife, she needs to be given adequate protection which could safely tide her over any financial crisis that might occur in the absence of the breadwinner.

As the person matures and gets married, he/she needs to take an adequate life cover to protect his/her spouse and family from the risk of premature death of the breadwinner. At this time some critical illness cover is also required, so as to cover one against any mishappening which may lead to non-performance of job for some time. Medical treatment is getting more and more expensive thanks to the scary inflation. Your health is your most important asset. Buy health insurance when you don’t need it so that you can have it when there is a need.

When it comes to the matters of money, investments and your dreams and goals, two people may not have the same opinion. At times like these, it is best to visit a certified financial planner and recognize the best tools to invest your resources that will help you realize your dreams. Your certified financial planner can give you unbiased opinions and tools, which will work to fulfill your dreams. All the best. Stay Blessed!!

Insurance Myths: Busted

A gentleman I know has been thinking of buying insurance for quite some time; however, having other important matters to handle on priority, this was conveniently put on the back burner. Now that time of the year has come when most people scramble for investments in tax saving instruments at the end of the financial year and insurance comes at the top of the list; this gentleman too wants to buy an insurance policy urgently. He called and said “I want to buy insurance and pay 10000/-; which plan should I go for?” “Buy term insurance” I told him since I knew he was awfully under insured. “No, the money goes down the drain if I outlive the plan and I know I’m going to live long”, he said. There is no dearth of people like him but I sincerely hope that some day good sense would prevail. Insurance is an integral part of a sound financial plan. However, it’s highly misunderstood and often bought and sold for all the wrong reasons under the Sun. Let’s have a look at some myths associated with insurance.

Myth 1: Insurance is a tax saving instrument.

Section 80C tax benefit is only an added advantage and it should not be the main reason for buying insurance. The primary objective of insurance should be to provide protection to your family. Do not confuse premiums paid under sec 80C with adequate life cover. If possible, consult a qualified financial planner who can tell you how much insurance you need by looking at your profile and understanding your future aspirations. Your insurance requirement will change according to events in your family like birth of a child, new liabilities etc. For example if you have taken a home loan, the policy should definitely cover that.

Myth 2: Term insurance is a waste as I am just paying premium and not getting anything in return.

No, it's not. In fact it's one of the best insurance products ever -- simple, inexpensive and serves `its purpose. Each insurance product has this at its core and the cost is a part of the premium you pay. It gives you peace of mind through the years as you know that you are protected. That's exactly what insurance is supposed to do.

Myth 3: My Company’s group insurance cover is enough.

Your group insurance may be enough at the moment but what if you lose your job or change your job with a gap in between. You will suddenly be left without cover. If you just rely on group insurance and say you leave your job and start a business at age 40+, getting insurance becomes expensive due to age and health conditions. It's always advisable to keep a term insurance/health insurance policy running along with the group plan. You will realize the benefits when you stop working.

Myth 4: My credit card has given me free insurance. Why do I need more?

It's even riskier than your group insurance. In this case there is a big layer between you and the insurance company. A policy is a legal contract between the insurance company and you and that's how it should remain. Have you heard of anyone who has got insurance money from a credit card company? These should be seen as more of extra offerings for marketing purpose.

Myth 5: I should buy policy in my wife or child’s name.

No. Insurance should always be bought by the person who is supporting dependents. It should never be the other way around. Ask yourself a basic question: what will happen if something happens to me; the earning member of the family? Who will take care of dependents; the non-earning members; like your wife, kids, parents? The answer is insurance. It's a very simple concept -- don't complicate it. You should take a policy to insure yourself; not your dependants.

Myth 6: I don’t need insurance. I’m single without dependents.

Well in that case you really don't need life insurance but think of medical emergency or

health disorders. It can simply wipe out all your savings. It will make a lot of sense to take a health policy and some retirement planning product. If you start early you may retire rich. Health policy should be bought by every individual as it cushions your savings against unforeseen emergencies. More on this, later. Till then stay insured; Stay Blessed!!

Seven Mistakes You must Avoid While Writing a Will

This is in continuation to my earlier post and I strongly feel writing a will is the first step in succession planning; the peace of mind is guaranteed knowing that we have settled our affairs and taken care of our loved ones. However, all the efforts could go waste if the will has discrepancies. So below are some of the mistakes one must look to avoid....

1. IMPROPER EXECUTION

Your will needs to be properly executed or it can be a useless piece of paper. Proper execution involves two major steps. First, the person who is making the will needs to sign it. This is a crucial step, as a will can be written on any piece of paper and only the signature gives it authenticity. This needs to be followed by its attestation by two or more witnesses. Your will shall be considered properly attested only if the witnesses sign it in your presence. However, it is not necessary that both the witnesses sign the will at the same time. Also, the witness should have seen you sign the will or you must at least acknowledge in his presence that you have signed it. The Indian Succession Act does not specify any particular form of attestation. However, in most cases, if the will is not executed properly, it may stand null and void.

2. GIFTING PROPERTY TO ATTESTING WITNESS

If you gift property to an attesting witness in the will, the document will remain valid, but the witness will not be able to inherit the property. For instance, if you want to leave a house to your daughter, she or her husband should not attest as witnesses. If they do so, your daughter will not inherit the house. The property will instead pass on to the residuary legatee. The will may identify the person, who in the event any residue property for any reason whatsoever is left, would receive that property. The person identified in such a case is called the residuary beneficiary, or residuary legatee. If no such person is present, the residuary estate will pass to the testator's natural heirs. Of course, the residuary legatee also cannot be the witness.

3. USING NICKNAMES OR INCOMPLETE NAMES

You may love to refer to your son by his nickname, but do not refer this name in your will. Remember, you will not be there to provide explanations when your will comes into effect. So you must be specific regarding names. Suppose your nephew (your sister's son) is to inherit certain funds. You must clearly state your nephew's name as the son of that particular sister. This will help rule out ambiguity, which may arise if you have another nephew by the same name, or if you have two sisters, both having sons.

If you have written incomplete names, the court will use extrinsic evidence to understand what you may have meant. If you have passed on property to a niece named Rani, and you have two such nieces, the court may either divide the property between the two or will try to understand which one you may have referred to. In case of ambiguity, how your will is interpreted will depend on the court.

4. IMPROPER DESCRIPTION OF PROPERTY

You must clearly describe the property to be bequeathed. Where it is quantifiable, specify it. If you want to give Rs 50,000 in cash to your son, mention this amount clearly. A vague sentence like, "I wish to give cash to ...." may be considered ambiguous and, hence, void.

5. PASSING ON PROPERTY TO UNBORN PEOPLE

Unlike trusts, wills have no place for unborn people. Any property bequeathed to a person yet to be born will be considered invalid. However, this does not mean that the property you leave will necessary lapse. Though the person may not exist when the will is drawn, the validity depends on whether he exists when the will becomes operational.

6. NOT UPDATING YOUR WILL

This is one of the most common mistakes people make. They forget to update a will if they acquire a new property or a new member is added to the family. A will is revocable. In fact, even if you state that your will is irrevocable, it remains revocable. This feature enables you to keep updating it. All you need to do to revoke the will is to physically destroy it or create a fresh one. The old document is automatically revoked. The only time that the earlier will is not considered revoked is if its replacement is deemed invalid.

7. NO PROBATE

Probate is the process of certifying a copy of the will by a competent court. It establishes the legal capacity of the person making the will. In Mumbai, Kolkata and Chennai, it is mandatory to have a probate, though in other places, it is not necessary. In cases of immovable property, a probate is required. Even when it comes to bank accounts or other investments, financial institutions usually insist on a probate. So, it is advisable to have one.

Keep reading!! Stay Blessed!!

How to Write Your Will

Remember Parveen Babi; the gorgeous actor of yester years; died a tragic death and her so called relatives fought among themselves for who should get the claim of the dead body from the police to perform the last rites (and subsequently should get the property as well). Well the cremation did happen but the property matter is still pending in the court. The point I want to put across is; most of us have the same primary goal in our lives – to build wealth. But what will happen to this wealth in case you are not around to ensure it goes to your loved ones? All the hard work done by you in your life so far can be wiped clean in an instant, in case of your unfortunate demise if you have not left a will behind. There have been numerous instances of assets being seized by the Government or going into dispute for years, even decades, in the absence of a clear and binding will. This is where estate planning comes into the picture.

Estate planning in simple terms refers to the passing down of assets from one generation to another. Most of us are under the impression that estate planning is only for the very wealthy.  No it’s not. On the contrary the estate planning is essential for all; regardless the size of their portfolio; and it should be done from the very first day you have an asset to bequeath (for example – your very first investment into a mutual fund). This prevents the addition of financial and legal grief to the emotional grief your loved ones will already be facing in case of your absence.

Here are some advantages of estate planning:

Ø  You decide who receives what,

Ø  You decide how and when your beneficiaries will receive their inheritance,

Ø  You decide who will manage your estate in your absence and

Ø  Estate planning saves your family and loved ones from going through the additional burden of reverting to the law to distribute the assets to the legal heirs in case of an intestate (dying without a legal will) demise.

One of the most important points within estate planning is making a will. Your will must be legal and valid within India, and fortunately it is much easier to make a legal, valid will in India than in some other countries. 

Ten points to remember while writing a will:

1. You need to be at least 21 years old to write a will. Do use the title ‘Last Will and Testament Of (state your name here)’ to make it clear that the document is your will.

2. State your full name, current address, and state that you are of sound mental state and under   no duress from anyone to make the will. Also name an executor, a person who will carry through the tenets of the will. If you are nominating an outside person to be the executor of your will, you must ask his permission first. If you have minor children, you must also indicate a guardian for them in your absence.

3. Your will should be simple, precise and clear. Otherwise there may be problems for the legal heirs. It is always advisable to consult a trusted advocate when writing your will.

4. A will must always be dated. If more than one wills exist, then the one having the latest date will nullify all other wills.

5. It is better to make a will at a younger age. As and when events or changes in the family necessitate changes the will can be changed.

6. A will can be hand-written or typed out. No stamp paper is necessary. You can write a will on a simple A4 piece of paper, sign and date it with witnesses and keep it in a secure location. It is often recommended to write your will in your own handwriting as this can be verified later if there are any doubts raised by relatives.

7. Each page of the will should be serially numbered and signed by the Testator (that is you) and the Witnesses. This is to prevent the Will being substituted, replaced, or pages being inserted by people intending to commit fraud. At the end of the will you (the Testator) should indicate the total number of pages in the will. Corrections if any should be countersigned.

8. If there are too many changes in the will, it is better to prepare an entirely new will rather than making modifications to an old will.

9. It is not compulsory for one to register a will with the Registering Authority, but in case any property or asset is given to any charitable organization, then registration should be done.

10. A will becomes operative only after the demise of the person making the will i.e. the testator. There is no restriction in the way you can deal with any assets even after making a will.

Remember, this is one of the most important documents you will ever create – detailing the distribution of the wealth you have worked so hard to build – to your loved ones. It is important to ensure that it is done correctly –take qualified professional assistance as required from a trusted advocate, as with all your financial planning decisions. More on estate planning to follow soon. Till then keep reading. Stay Blessed!!

Plan Your Retirement

While all of us have loved Amitabh Bachchan in Baghban, we wouldn’t wish something like that should happen to anybody in real life. There was time when 60 was the optimum age for retirement. Now the tables have turned and 60 is the new 40. The life expectancy rate of an average individual has increased by 20 years. And with this, the standard of living, earnings, opportunities and whole social and psychological system has improved and increased. 

The question is whether the increased life expectancy rate will bring about a paradigm shift and if yes, how? And, to live a long fruitful life, is health the only imperative or financial security has as much meaning too? Let's compute the retirement age, which is 60 and average life expectancy, which is 75 in urban areas for males and 80 years for females, a good part of life is left to live  doing what you always wanted to do. But is it possible to have a dream life with no money, and when does one start planning to have that kind of a life?

There are many products catering to this need (pensions, fixed deposits, mutual funds, medical insurance, etc) but how to choose what is the best for you since options are many; and all these options should comply with your needs, dreams and goals. If only a few steps are drawn and monitored, this process becomes relatively lucid and effortless.

Start building a retirement corpus

According to experts, you will require at least 70% to 80% of your last drawn salary on an yearly basis to live comfortably for 25-30 years to come after retirement. Agreed, your loans may be paid off, you would be paying lesser income tax and there would not be any expenses for raising a family or any work related expenses either, but cost of living would go up thanks to inflation and having more hours of leisure at your disposal would also require more money to be spent. After retirement your income inflow would stop, however out flow would go up. For example if you spend Rs 25000/ per month for your household expenses, after 15 yrs you would need Rs 79305/- for the same expenses at 8% inflation. Not many would want to compromise on the standard of living hence start building a retirement corpus at the earliest.

If it's worth thinking about, it's worth writing about

Sit with a pen and paper and decide upon what you need in life. It could be a house you want to have at sea face or a farm house with a swanky car and beautiful library at your home. It could be anything. Practice 'to each his own' and jot down things you need and deserve in life. Also, set the time in which you want to achieve your goals. Thinking what you will do in the latter half of your life and actually doing it are two different things. It has to be crystal clear as to how much money you will need each month for day to day use. This might seem a little too early to contemplate but when it comes to life, you can never be too prepared.

Be informed, be powerful

Information is power. Know what is happening in the market. What all schemes are promising and how returns can be capitalized in full capacity. Sit with your financial planner and dedicate time for the life you are going to live one day. 

Monitor the planned graph

This is the critical part. Deciding on how will you achieve that goal or dream of yours. What you need to do to achieve those goals? What kind of investment will help and how much savings is required? A financial planner will be of definite help since he knows the best. A lot many options may be available to you depending upon your financial condition and other factors, to achieve your goals. So what are these options? These questions are to be answered in all sincerity.

Uncertainty - inevitable

No matter how depressing it sounds, always be prepared for the worst. Know that things always don't work according to plan. Have an emergency plan, one that is not drafted when emergency strikes but one that is put through practice in time of need. Chalk out the ways as to how to reduce risks, what measures need to be taken up while being under strenuous and tricky situations and how to cope up with them.

Also, one needs to draw up a plan to seamless transfer your assets to your children or any other beneficiaries once you are not around. Truth is, the old age is a boon in many a ways, only if you are a little prepared and planned monetarily. Happy retirement planning. Stay Blessed!!