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Financial Planning

Financial planning is the process of evaluating your current financial situation, setting specific financial goals, and developing a strategy to achieve those goals. It involves assessing your income, expenses, assets, and liabilities, and then creating a comprehensive plan to manage your finances effectively.

Here are the key components of financial planning:

• Setting Financial Goals: This is the first step in financial planning. You need to determine what you want to achieve financially in the short term (e.g., saving for a vacation) and the long term (e.g., retirement planning). Goals should be specific, measurable, achievable, relevant, and time-bound (SMART).
• Assessing Current Financial Situation: To create a financial plan, you need to have a clear understanding of your current financial situation. This involves gathering information about your income, expenses, assets (e.g., savings, investments, property), and liabilities (e.g., debts).
• Budgeting: Creating a budget is an essential part of financial planning. It helps you track your income and expenses, ensuring that you're not spending more than you earn. A budget can also help you allocate funds towards your financial goals.
• Debt Management: If you have outstanding debts, part of your financial plan may involve strategies for managing and paying down your debts efficiently. This can include prioritizing high-interest debt or consolidating loans.
• Saving and Investing: Depending on your financial goals and timeline, you may need to save and invest your money. This could involve setting up an emergency fund, contributing to retirement accounts, or investing in stocks, bonds, real estate, or other assets.
• Insurance Planning: Assessing your insurance needs is an important aspect of financial planning. You should ensure you have adequate coverage for health, life, disability, and property insurance to protect yourself and your assets.
• Tax Planning: A financial plan should also consider tax-efficient strategies to minimize the amount of taxes you pay. This might involve taking advantage of tax deductions, credits, and tax-advantaged accounts.
• Retirement Planning: Saving for retirement is a crucial part of financial planning. You need to estimate how much money you'll need for retirement and develop a strategy to reach that goal. Retirement accounts like 401(k)s and IRAs are often used for this purpose.
• Estate Planning: Estate planning involves preparing for the distribution of your assets after your death. It may include creating a will, setting up trusts, and designating beneficiaries for accounts and insurance policies.
• Monitoring and Adjusting: Financial planning is not a one-time event; it's an ongoing process. You should regularly review and adjust your financial plan as your goals, financial situation, and market conditions change.

Financial planning can help you achieve financial security, meet your financial goals, and reduce financial stress. It's a personalized process that takes into account your unique circumstances and aspirations, and it often involves working with financial professionals such as financial planners or advisors to develop and implement a comprehensive plan.

Mutual Fund

What is mutual fund?

Mutual funds are financial instruments which invest in a portfolio of securities. These securities may be stocks, bonds, money market instruments, gold, silver and real estate investment trusts (REITs) etc. You can buy units of mutual funds; each unit represents a certain percentage of the mutual fund scheme portfolio. Mutual funds are managed by professional fund managers who manage the schemes according to the investment objectives of the schemes.

How to invest in mutual funds?

When an asset management company (AMC) house launches a new mutual fund scheme, it invites subscriptions from the public in the New Fund Offer (NFO). In the NFO period, investors are allotted units at par value (usually Rs 10). If you invested Rs 10,000 in a mutual fund scheme during the NFO period, you would be allotted 1,000 units. You need to be KYC compliant to invest in mutual funds. Your financial advisor can help you fulfil KYC requirements. Along with KYC documents, you need to provide bank details to invest in mutual funds. Investors can invest in mutual funds only from their own bank accounts.

At the end of the NFO period, the money pooled from all the investors are invested in a diversified portfolio of securities according to the scheme's mandate. After the NFO, investors can buy units of open ended schemes from the AMC at prevailing Net Asset Values (NAV). You can also redeem open ended mutual fund schemes at any time at prevailing NAVs. The redemption proceeds will be credited to your bank account on T+3 for equity funds. Investors should note that for redemptions within a certain period of time from investment exit loads may apply.

Different types of mutual funds

• Equity funds: These mutual fund schemes invest in equity and equity related securities. Equity funds have sub-categories based on the market cap segments, where the scheme may primarily invest in e.g. large cap, large and midcap, midcap, small cap, multicap, flexicap etc. The primary investment objective of equity funds is capital appreciation.
• Debt funds: These mutual funds schemes invest in debt and money market instruments. Debt funds have sub-categories based on the maturity profiles of the underlying debt or money market instruments e.g. overnight, liquid, ultra-short duration, low duration, short duration, medium duration, long duration etc. The primary investment objective of equity funds is capital appreciation.
• Hybrid funds: These funds invest in both equity and debt securities. They may also invest in other classes like gold, REITs, InvITs etc. The primary investment objective of hybrid funds is asset allocation. Different types of hybrid funds include aggressive hybrid funds, conservative hybrid funds, balanced advantage funds, equity savings etc.

Different fund categories and sub-categories have different risk profiles. Mutual funds provide investment solutions for a wide spectrum of risk appetites and investment needs. Your financial advisor can help you select the right investment option for you.

Taxation of mutual funds

Mutual funds, whose average equity allocation (i.e. where underlying assets are equity and equity related securities) is 65% or more, are treated as equity funds from tax perspective. These include all equity funds and also several hybrid fund categories. Short term capital gains (investment holding period of less than 12 months) in equity funds are taxed at 15%. Long term capital gains (investment holding period of more than 12 months) in equity funds are tax free up to Rs 100,000 and taxed at 10% thereafter. Short term capital gains (investment holding period of less than 36 months) in non equity funds are taxed as per the income tax rate of the investor. Long term capital gains (investment holding period of more than 36 months) in non equity funds are taxed at 20% after allowing for indexation. Investments in mutual fund Equity Linked Savings Schemes (ELSS) qualify for deductions under Section 80C.

Portfolio Management Schemes (PMS)

Portfolio Management Services or PMS, is a service offered by the Portfolio Manager or an asset management company, is an investment portfolio in stocks, fixed income, debt, cash and other securities, managed by a professional fund manager that can potentially be tailored to meet specific investment objectives. Unlike mutual funds, where investors own units of the mutual fund scheme, in a PMS, the investors own individual securities. Although the portfolio managers may oversee hundreds of portfolios, your account may be unique.

Types of PMS

• Discretionary PMS: Under this service, the choice as well as the timings of the investment decisions is solely lies with the Portfolio Manager.
• Non-Discretionary: Under this service, while the portfolio manager will suggest only the investment ideas, the investor will decide the investment timings and decisions regarding the portfolio. However the execution of the trades is done by the PMS portfolio manager.
• Advisory: Under this service, while the PMS portfolio manager only suggests the investment ideas, the decision as well as the execution of the investment decisions rest solely with the Investors.

Benefits of a PMS

• Professional Management: The PMS Service provides professional management of stock portfolios with the main objective of delivering long-term performance while minimising risk.
• Continuous Monitoring: The PMS fund manager, constantly monitors the portfolio and periodic changes are made by him/her to optimise the performance.
• Flexibility: The Portfolio Manager has fair amount of flexibility in terms of holding cash, for example, it can keep the cash holding even up to 100% depending upon his./her understanding of the market conditions. The portfolio manager can create a reasonable concentration in the investor portfolios by investing disproportionate amounts in favour of foreseeable opportunities in the market situation.
• Risk Control: The research team of the PMS Service, provides real time information to support the fund management team and thus control the risk.
• Ease of Operation: Portfolio Management Service provides the clients with a customised service and takes care of all the administrative aspects and provides periodic portfolio reporting. It discloses the overall status of the portfolio, holdings and performance on a daily basis. For this, the PMS Service provides a login ID and password for the investor to check his/her PMS details.
• Custom made Advice: For select clients, the PMS provider gives the benefit of tailor made investment advice designed to achieve investors various financial goals.

Alternative Investment Funds (AIF)

Alternative Investment Funds or AIF in short, are defined as privately pooled investment funds and categorized by The Securities Exchange Board of India (SEBI) as Category I AIF, Category II AIF, and Category III AIF. It is a fund of funds (FOF) that invests in asset classes other than stocks, bonds, Government securities, fixed deposits or cash. It pools money from various HNI investors and invests them under different investment categories as specified by the SEBI for the benefit of investors.

Assets under management (AUM) under AIF can include start-ups, SME funds, infrastructure funds, private equity funds, venture capital or even hedge funds that may be trading in listed or unlisted derivatives depending on the fund type.

The minimum investment amount to invest in an AIF is Rs 1.00 Crore depending on the type of AIF. Therefore, it can be called as product meant for the HNIs.

Advantages of AIF

AIF offers diversification as the key benefit. AIFs have considerable freedom to decide where to invest unlike most other funds or mutual funds which are totally regulated and follow the fund/ scheme guidelines as mandated by SEBI.

There are various non-traditional investment options available to AIFs which generally are not available to all investors, particularly retail investors.

How AIF works?

Alternative Investment Funds or AIF raise money to form an investment fund pool that invests in non-traditional assets classes that the ordinary investors may not have access through any other products like Mutual Funds. Money can be pooled from various types of investors, example - Resident Investors, NRIs or non-resident investors or foreign investors.

Who can invest in AIF?

AIFs are mainly aimed at high net worth or HNI individuals who are ready to invest minimum Rs 1.00 Crore and take high risk. While the return potential of AIF may be very high, the risk is also very high. Therefore, this is not meant for all investors excepting those who are well versed with these kind of investing.

In summary, if you have a large amount to invest in one instrument

• You have the ability to sustain the risk
• You are ready to remain invested with long lock-in periods

Fixed Deposit

Fixed deposits has traditionally been and still is the most popular investment option in India. As per RBI's report on household savings, 56% of household financial assets are invested in Bank FDs. Corporate Fixed Deposits are term deposits like bank FDs. They offer fixed rate of interest and principal amount on maturity. However, instead of banks, corporate FDs are offered by non banking financial companies (NBFCs). Corporate FDs are very popular among informed investors since offer higher returns compared to bank FDs.

Bank FD versus Corporate FD

• Rate of return: Interest rates of corporate FDs are usually higher than interest rates of banks FDs. For example current 3 - 5 year FD interest in SBI is 6.1%, whereas Bajaj Finance is offering 7% interest rate on 3 - 4 year FD. Interest rates of corporate FDs vary from one company to another depending on the credit rating of the company. We will discuss about credit ratings later.
• Tenure: The tenure for bank FDs range from 7 days to 10 years. The tenure for corporate FDs range from 12 months to maximum 4 - 6 years. If you want to invest for very long tenure e.g. 8 to 10 years, then bank FD will be the only term deposit option for you. However, for shorter tenures you may consider corporate FDs.
• Lock-in period: There is no lock-in period in bank FDs. Corporate FDs may have lock-in period. Usually lock-in period for corporate FDs is 3 months; you cannot make any withdrawal prior to the completion of the lock-in period. However, not all corporate FDs may have lock-in periods.
• Premature withdrawals: Premature withdrawals are allowed in both bank and corporate FDs. However, penalties may apply for premature withdrawals may be applicable for both bank and corporate FDs. If you want the flexibility of making premature withdrawals, then bank FDs will be the more favourable option for two reasons (a) no lock-in period (higher liquidity) and (b) lesser premature withdrawal penalty. While bank FDs may offer more flexibility for premature withdrawals, you should weigh this as a trade-off against higher returns offered by corporate FDs.
• Taxation: Taxation of bank FDs and corporate FDs is the same. The interest paid by the FD is added to your income and taxed as per your income tax slab.

Points to consider for investing in corporate FDs

• Interest rate: Different NBFCs offer different interest rates on their FDs. You should compare different FDs and make informed investment decisions. However, you should also take credit risk into consideration.
• Credit risk: Credit risk refers to the NBFC's failure of meeting interest and / or principal payment obligations, exposing the investor to potential loss of income and / or capital. You should consider the credit rating of the instrument and make informed investment decisions.
• Tenures: Corporate FDs may offer different interest rates for different tenures; interest rates are usually higher for longer tenures. You should decide as per investment needs.
• Mode of interest pay-out: Corporate FDs offer both periodic (non cumulative) and cumulative interest pay-out. In periodic interest payout, the interest will be paid to monthly, quarterly, half yearly or yearly; the rate of interest will differ for different pay-out intervals. In cumulative interest pay-out the interest is re-invested and you get the benefits of compound interest. You should decide on cumulative or non cumulative interest depending on your investment needs.

Capital Gains Bonds & Fixed Income

What are bonds?

Bonds are fixed income instruments which pay fixed rate of interest at regular intervals and the principal amount on maturity. Bonds as an asset class are very popular in the developed economies. However, the bond market in India has historically been relatively small. In more recent times, with Bank FD interest rates declining, bonds are gaining a lot of popularity among retail and HNI investors.

How do bonds work?

You can buy bonds both from the primary market (at the time when the bond is issued) or from the secondary market (stock exchanges). You need to have Demat accounts to invest in bonds in secondary market. If you buy in the primary issue, you will get the bond at face value. In the secondary market, the bonds will be priced either at premium or discount to the face value based on prevailing interest rates. The bond will make periodic interest payments to you based on the coupon rate. On maturity you will get the face value of the bond. You can also sell the bond before maturity in the secondary market at prevailing market price.

Key terms to understand in bond investing

• Secured / unsecured: A secured bond is one which is backed by collateral. Collateral refers to assets of the bond issuer which can be used as security against the loan. If the issuer defaults for any reason, the collateral can be sold to pay the investors. A secured bond has much lower credit risk compared to an unsecured bond.
• Face Value: The bonds are issued at face value. Face value is the amount that will be paid to you upon maturity of the bond. Coupon or interest paid by the bond is on face value. Bonds may trade at premium or discount to the face value. In other words, if you are buying the bond in secondary market (i.e. stock exchanges), then the price at which you buy will be higher or lower than the face value.
• Coupon Rate: This is the rate of interest that will be paid to you on a periodic basis. For example, if face value of a bond is Rs 1,000 and the coupon rate is 8%, then you will get Rs 80 as interest every year.
• Frequency of coupon payments: This refers to the intervals at which coupon payments will be made e.g. half yearly, annual etc.
• Redemption date: This refers to the date when the bond will mature. You will get the face value of the bond, along with accrued interest (if any) on the redemption date.
• Accrued Interest: Accrued interest is the interest accrued by the seller from the last coupon payment date till the date on which the bond is sold. Since the buyer will get the full year's interest on the next coupon date, the accrued interest is included in the bond's quoted price. The bond's price including the accrued interest is known as the dirty price. The clean price of the bond = Dirty price - accrued interest.
• Yield to maturity: YTM of a fixed income instrument is the return on investment (assuming interest payments are re-invested at the same rate) if you hold the instrument till its maturity. When calculating yields, both interest payments (coupons) and principal payment (face value) on maturity must be taken into consideration. Higher the YTM, higher the returns. YTM.
• Duration: Duration refers to the interest rate risk of a bond. There are two types of durations - Macaulay Duration and Modified Duration. Macaulay and Modified Durations are closely related. Macaulay duration is the weighted average term to maturity of the cash flows from a fixed income security. In simplistic terms, Macaulay Duration is the weighted average number of years an investor must maintain a position in a fixed income instrument until the present value of the fixed income instrument's cash flows equals the amount paid for the instrument. Duration and maturity are related - longer the maturity, longer is the duration. It is important for you to know that duration is directly related to the interest rate sensitivity of a bond. Higher the duration, higher is the bond's sensitivity to interest changes. Modified duration is simply the percentage change in price due to the percentage change in interest rate.
• Bond rating: Bonds are rated by credit rating agencies like CRISIL and ICRA. Higher the credit rating lower is the credit risk. You should know that bo nds with lower ratings will have higher YTMs but the risk is also higher. You should make informed investment decisions.

Different types of bonds

• Corporate Bonds: These are secured bonds issued by companies.
• Sovereign Gold Bonds (SGBs): These are gold bonds (backed by gold) issued by RBI on behalf of the Government.
• Government Securities (G-Secs): These are Government bonds issued by RBI on behalf of the Government of India. These bonds have sovereign guarantee.
• Non convertible debentures (NCDs): These are unsecured bonds issued by companies.
• RBI Bonds: The Government of India launched the Floating Rate Savings Bonds, 2020 (Taxable) scheme on July 01, 2020 to enable Resident Indians/HUF to invest in a taxable bond, without any monetary ceiling. The investment tenure of these Bonds are 7 years. The interest is paid semi annually on 1st January and 1st July. The current coupon rate is 7.15% and the coupon/interest of the Bond is reset half yearly based on National Savings Certificate (NSC) rate (Base rate + 35bps).
• Capital Gain Bonds: You can save capital gains tax arising out sale of capital assets e.g. property etc by investing in capital gains bonds u/s 54EC. Long-term capital gain is the gain that is derived out of a sale of an asset (Land or Building) that has been held for more than 2 years. You can invest the gain in certain specified bonds to claim tax exemption within 6 months of the date of sale of the asset. 54EC bonds, or capital gains bonds, are one of the best way to save long-term capital gain tax arising out of sale a capital asset. The maximum limit for investing in 54EC bonds is Rs. 50,00,000. The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) , NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited). The tenure of these Bonds are usually 5 years.

How to invest in bonds?

You can contact us to buy any type of Bonds.

LIFE INSURANCE

Life is unpredictable. So, it is important to ensure that your family and loved ones are taken care of financially in case something happens to you. This is where life insurance comes in. It can provide some financial peace of mind if the worst were to happen. Life insurance offers a way to replace the loss of income that occurs when someone dies. Life insurance is insurance for you and your family's peace of mind. With a life insurance policy in place, you can

• Provide security to your family
• Protect your home mortgage, loans, credit card borrowings etc.
• Provide finance to your loved ones to achieve their goals in your absence
• Ensure that your family is able to maintain their lifestyle, no matter what happens
• Take care of your estate planning needs
• Look at other retirement saving/investment vehicles

Health Insurance

Medical emergencies are unpredictable and can arise when least expected. Protecting your hard-earned savings while ensuring your family gets access to quality healthcare is essential. This is where health insurance comes in. It provides a robust financial buffer against sky-rocketing medical inflation and hospital bills, letting you focus entirely on recovery rather than expenses. Health insurance is vital protection for your health and your financial stability.

With a comprehensive health insurance policy in place, you can:

• Protect your hard-earned savings from being drained by sudden hospitalization expenses.
• Access quality medical treatment at top-tier hospitals without compromising on care.
• Benefit from cashless hospitalization across extensive network hospital chains.
• Cover pre- and post-hospitalization costs, including ambulance fees, diagnostic tests, and doctor visits.
• Safeguard against critical illnesses with specialized, higher-coverage add-ons.
• Avail tax benefits on premiums paid under Section 80D of the Income Tax Act.

Types of Health Insurance Plans to Consider

Depending on your life stage and specific requirements, you can choose the right coverage from the following options:

• Individual Health Insurance: Designed to cover a single person. The entire sum insured is dedicated solely to the policyholder, ensuring maximum financial protection for your personal medical needs without being shared.
• Family Floater Plans: A highly cost-effective way to protect your entire family (such as yourself, your spouse, and dependent children) under a single umbrella policy. The total sum insured floats and is shared among all covered members, making it easier to manage than multiple individual policies.
• Critical Illness Cover: A specialized plan that provides a guaranteed lump-sum payout upon the diagnosis of specified life-threatening diseases (such as cancer, heart attack, kidney failure, or stroke). This payout can be used to fund expensive treatments, travel for medical care, or replace lost income during recovery.
• Senior Citizen Health Insurance: Tailored specifically for individuals over the age of 60. These plans account for age-related health risks and often feature benefits like coverage for pre-existing conditions, day-care procedures, and annual health check-ups.

General Insurance

How does life insurance plan work?

Motor insurance is a mandatory requirement if have a car, motorcycle or scooter. You will have to pay a fine and have your vehicle registration certificate (RC) or driving license (DL) confiscated by the police, if you are driving without a valid motor insurance or a motor insurance policy that has expired.

There are two types of motor insurance - third party insurance and comprehensive insurance. Third party insurance is mandatory for all vehicle owners in India. Third-party insurance will cover your liability towards damages incurred by the third party in case an accident happens with your vehicle. It won't cover damages to your vehicle. Comprehensive motor insurance provides your vehicle complete end-to-end protection against damage caused by accidents or natural disasters like floods etc.

Motor insurance premium depends on the price of the car (in case of a brand new car) or the Insurance Declared Value (IDV) of a car that has completed more than 1 year. Motor insurance is usually valid for a year; you must renew or get a new motor insurance policy before expiry of your current motor insurance. Some motor insurance policies can cover you for multiple years.

Travel insurance

Travel insurance provides financial protection against possible losses that you may suffer when you are travelling by air, especially in overseas travel. It covers you against financial losses due to loss of baggage, trip cancellation, and flight delays. Some travel insurances also cover medical expenses that you may have to incur while travelling.

Home insurance

As the name suggests, home insurance provides financial protection against damages caused to your home and its contents (furniture, home appliances etc) due to man-made (e.g. fire) or natural disasters (e.g. flood, earthquake etc).

Loans Service

A wide variety of loan products are available to suit different needs, short term, medium term and long term needs of customers.

• Home loan: Home loan is long term product to finance the purchase of property. You have to make a down payment (percentage of the purchase consideration) and the lender will provide rest of the funds. For under construction properties, the home loan can also be construction linked. You have to make loan re-payments in equal monthly instalments (EMI). In home loan, the property will be lien with the lender.
• Vehicle loan: Vehicle loan is a medium term product to finance the purchase of a vehicle e.g. two wheeler, four wheeler etc. You have to make minimum down payment (percentage of the vehicle price) and the lender will provide rest of the funds. You have to make loan re-payments in equal monthly instalments (EMI). In vehicle loan, the vehicle will be lien with the lender.
• Personal loan: This is an unsecured loan for certain short term tenure. Loan approval will depend on your credit history. There are two types of personal repayments. The most popular repayment is in equal monthly instalments (EMI). Some lenders may allow bullet repayment, whereby you will have to pay the interest every month and the principal at the end of the tenure.
• MSME loan: MSMEs can finance their short term and long term financing needs through MSME loans. MSME loans can be for working capital, for purchase of commercial assets and equipment or for finance business growth plans. MSME loan are usually backed by collateral, but there may be collateral free loan products also.
• Gold loan: You can take a loan against your gold jewellery. Your gold will be stored in safety vaults of the lender. The loan amount is calculated as a percentage of the gold value. Gold loans can be EMI free. Once you make the loan payment (interest and principal), you can take possession of your gold jewellery.
• Loan against property: Like gold loans, you can also get loan against your property (residential or commercial). The loan amount to be disbursed is calculated as percentage of the property value. Your property documents will be lien with the lender. Loan against property can be medium or long term loans. You have to make loan re-payments in equal monthly instalments (EMI).
• Loan against shares: You can also get loan against shares owned by you. The loan amount to be disbursed is calculated as percentage of the market value of the shares. You will have to pledge your shares to the lender. The shares should be part of the lenders list of approved securities. The shares will not be transferred to the lender. They will remain in your demat account. The depository will mark lien against the shares pledged by you. Once you repay the loan, the lien will be removed from the shares.
• Loan against mutual fund units: This is very similar to loan against shares. You can get a loan by pledging your mutual fund units. The mutual fund schemes should be part of the lenders list of approved schemes. The loan amount to be disbursed is calculated as percentage of the NAV of the mutual fund units. Different percentages are applicable for equity and debt mutual fund schemes. You do not need to have a demat account to take loan against mutual funds. The Registrar and Transfer Agent (RTA) will mark lien against the mutual fund units pledged by you. Once you repay the loan, the lien will be removed from the mutual funds.