Posts Tagged ‘financial planner’

Take Control Of Your Golden Years Financial Planning Final Part:)

Continuing the final part 🙂

Sumit’s colleague, Ankit, who is 30 years old, commences his retirement planning at the same time. Given that he also aims to retire at the age of 60 years, he has an investment horizon of 30 years. Assuming, like Sumit, he invests Rs 50,000 every month @ 10% per annum, he will accumulate Rs 11.30 crore at retirement. On the same lines, Piyush, Sumit’s other colleague, commences investing at the age of 35 with an investment horizon of 25 years to accumulate Rs 6.63 crore at the age of 60 years (at Rs 50,000 per month @ 10% per annum).

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Given that all three of them have the same monthly investment (Rs 50,000), which is invested at the same rate (10% per annum), the difference can be attributed completely to Sumit’s early start vis-à-vis his colleagues. Ankit who has an investment tenure that is lower than Sumit’s by only 5 years accumulates a corpus that is nearly 40% lower than Sumit’s. Piyush, whose investment tenure is lower than Sumit’s by 10 years, accumulates approx 65% lower than him on retirement. A 5-Yr delay in retirement planning sounds like a small difference, but the power of compounding magnifies it to gigantic proportions.

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CHALK OUT YOUR CORPUS 🙂

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You’ll have to keep a realistic goal that you can realise in the time you have. Don’t expect that the zeroes will multiply automatically in your savings. See how much you can afford to save every month. Of course, if you start at a late age you will have to increase your savings substantially, so cut down on any superfluous expenses.

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Prepare a budget which lists what you spend on necessities so that you know how much your monthly/annual expenditure will be in the future. Account for inflation too. Keep a rough estimate of 7-8% inflation every year. Also, consider expenses that are bound to increase, such as medical and transport expenses. Then again, calculate the expenses that may cease to exist, such as your children’s education.

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DON’T TOUCH THOSE SAVINGS

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More often than not, people have combined savings, that is, they save money for all their financial goals together— retirement, children’s education, their marriage, buying a home, etc. Invariably, you spend more on your initial financial goal and end up depleting your savings. By the time you retire, you have barely any money left. Overcome this obstacle.

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Build your retirement corpus separately, and do not touch it. It’s always better to earmark the time period for your goals and make separate portfolios for each of these goals. For instance, your children’s education may be a short-term goal (compared with retirement, that is). Since retirement is a long-term goal, if you are starting early you can afford to take risks and invest primarily in equities. But if retirement is a short-term goal, that is, only 5 years away, you won’t be able to take any risks. You’ll be more concerned about security. In that case, invest primarily in debt instruments.

MAKE A PLAN

Before you embark on saving for retirement, you must have a plan in place. While a plan may sound fancy and even intimidating, rest assured it is not all that complicated. Your retirement plan is simply your wish list of how you wish to spend your twilight years. Among other expenses, when you plan for retirement, you must make it a point to set aside money for medical expenses and contingencies, as any retirement plan without them is incomplete.

While you have to decide how you wish to lead your life in retirement, your financial planner will help  you translate that dream in numbers. He will put a number to everything i.e. your dream house, vehicle, post-retirement income, medical expenses and contingencies among other inputs. He will tell you how much you need to save and where to invest your savings so as to achieve your retirement corpus. In other words, he will outline a roadmap and more importantly, will implement the same for you.

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TRACK AND REVIEW YOUR PLAN

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Once the plan is outlined and implemented you have to still ensure that you are on track at all times to meet your targeted return at the desired level of risk. This calls for a periodic review of your investment plan. Over time as you approach retirement; reduce allocation to risky assets like stocks and/or equity funds in favour of more conservative avenues like fixed deposits.

The future is closer than you think. Pick targets early and give them the right kind of support to take control of those golden years.

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For any financial planning queries, email us at financialplanning@smcwealth.com

Investor’s Dilemma : Are ULIPs just another Mutual Fund??

ulips

At almost every investor mind a question is generally cropped up: “What is the difference between a ULIP and a Mutual Fund?”

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The reason, perhaps for the wide extent of confusion, lies largely in the way ULIPs have been sold by agents. As just another mutual fund.

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Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning.

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As is the case with mutual funds, investors in ULIPs is allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis.

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Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few.

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Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component.

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Mutual Fund is a body corporate that pools the money from individual/corporate investors and invests the same on behalf of the investors /unit holders, in various investment avenues like equity shares, Government securities, Bonds, Call money markets etc., as per the pre-specified objective and distributes the profits earned from such investment.

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In India, Mutual Funds are registered with the Securities and Exchange Board of India (SEBI).


ULIPs vs Mutual Funds

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ULIPs are a mix of investment and insurance. 🙂

But very long term investment, not even medium term.

Insurance companies themselves admit, that if your investment horizon is anything less than 7 years, don’t even consider a ULIP.

🙂

Charge structure in a ULIP is vastly different from a mutual fund.

🙂

ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure.

The freedom to modify premium payments at one’s convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

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In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India.

🙂

Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority.

🙂

ULIPs also allow you to switch from debt to equity within the same scheme, at no extra charge.

So if you want to get the benefits of long term investment and risk cover in one single product, ULIP is the product for you.

🙂

So it is not an issue, of whether a mutual fund is better or a ULIP. It is about your need.

Both can co-exist in your basket of needs. 🙂

So identify your needs with a financial planner and then pick the product suitable for you.

🙂

ULIPs are a mix of investment and insurance. But very long term investment, not even medium term.

Insurance companies themselves admit, that if your investment horizon is anything less than 7 years, don’t even consider a ULIP.

Charge structure in a ULIP is vastly different from a mutual fund.

ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure.

The freedom to modify premium payments at one’s convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority.

ULIPs also allow you to switch from debt to equity within the same scheme, at no extra charge. So if you want to get the benefits of long term investment and risk cover in one single product, ULIP is the product for you.

So it is not an issue, of whether a mutual fund is better or a ULIP. It is about your need.

Both can co-exist in your basket of needs.

So identify your needs with a financial planner and then pick the product suitable for you.

What are ULIPs? How is it different from Mutual funds ?

ULIPs are a mix of investment and insurance

ULIPs are a mix of investment and insurance

At almost every investor mind a question is generally cropped up: “What is the difference between a ULIP and a Mutual Fund?”

The reason, perhaps for the wide extent of confusion, lies largely in the way ULIPs have been sold by agents. As just another mutual fund.

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning.

As is the case with mutual funds, investors in ULIPs is allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis.

Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few.

Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component.

And as you would be aware about Mutual Fund, it is a body corporate that pools the money from individual/corporate investors and invests the same on behalf of the investors /unit holders, in various investment avenues like equity shares, Government securities, Bonds, Call money markets etc., as per the pre-specified objective and distributes the profits earned from such investment.

In India, Mutual Funds are registered with the Securities and Exchange Board of India (SEBI).

ULIPs vs Mutual Funds

ULIPs

Mutual Funds

Investment amounts

Determined by the investor and can be modified as well

Minimum investment amounts are determined by the fund house

Expenses

No upper limits, expenses determined by the insurance company

Upper limits for expenses chargeable to investors have been set by the regulator

Portfolio disclosure

Not mandatory*

Quarterly disclosures are mandatory

Modifying asset allocation

Generally permitted for free or at a nominal cost

Entry/exit loads have to be borne by the investor

Tax benefits

Section 80C benefits are available on all ULIP investments

Section 80C benefits are available only on investments in tax-saving funds

ULIPs are a mix of investment and insurance. But very long term investment, not even medium term.Insurance companies themselves admit, that if your investment horizon is anything less than 7 years, don’t even consider a ULIP.

Charge structure in a ULIP is vastly different from a mutual fund.

ULIPs invest for the long term, as they expect investors to stay for the long term. And the purpose of a ULIP is also different build assets through a pension plan, retirement plan or child plan. All of which, need very long term investing, say 10-15 years or even more.

ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure.

For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP).

The freedom to modify premium payments at one’s convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority.

Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio.

*There is lack of consensus on whether ULIPs are required to disclose their portfolios. While some insurers claim that disclosing portfolios on a quarterly basis is mandatory, others state that there is no legal obligation to do so.

ULIPs also allow you to switch from debt to equity within the same scheme, at no extra charge. So if you want to get the benefits of long term investment and risk cover in one single product, ULIP is the product for you.

So it is not an issue, of whether a mutual fund is better or a ULIP. It is about your need.

Both can co-exist in your basket of needs.

So identify your needs with a financial planner and then pick the product suitable for you.