Are you still Procrastinating......

Back in April I had written about how Inflation invisibly effects our Financial health. Today its time to focus on its evil twin - Procrastination - is the practice of carrying out less urgent tasks in preference to more urgent ones, or doing more pleasurable things in place of less pleasurable ones, and thus putting off impending tasks to a later time, sometimes to the "last minute" before the deadline. 

So consider this, we have a standard (hard) working life of about 30 yrs, and due to increase in longevity and advancement in science and medicine we need to consider an equal number for our post retirement life.

But here' what most of the young population feels:

As young and unmarried individuals who have just begun to earn and feel good about it, they do not engage seriously with money or investment decisions. There are several excuses—not enough money; too many choices; very complex; uncertain about where to start; too much paperwork. While you procrastinate about money and also allow your financial health to play out by default.

This lazy attitude of मागिर पलोया (procrastinating) with your money life is (quite irritating) causing unwanted troubles in the future. 

There are several youngsters who have not opened their bank statements, haven't deposited the dividend cheques, not filed the tax returns, or completed the KYC process with a mutual fund. They have a PAN card since the employer insists on it. The taxman would want to know if they can establish how they built their assets, and whether they paid the taxes on their income before doing so. Assuming you won't get caught is a bad idea. Keep empty shoe-boxes to store statements, bills, papers, and notices and take the time to sort them periodically. Form groups to know how to file your tax and do it on time. These habits, if developed early on, will help, as you move up in your career and your income rises.

Conclusion:

Over the past decade, India’s young brigade has increased exponentially, and though our schools and colleges have thought us about compounding in our mathematics syllabus, they have not really played their part of imparting the most basic and practical knowledge about its effects (and that of inflation either). 

After all, in this era of smart phones, I dont think it will be that difficult to learn and achieve much more with our money if we stop procrastinating.

PS: I had bought a second hand tablet in February this year and was planning to pen my ideas via sketches (inspired by Carl Richards of Behaviour Gap). Although it was only used to for amusement of my son(procrastinate) till sometime last week when Janki asked me "didn't you buy this for office work". So in all seriousness here is my 1st sketch. Hope I can improve upon this.

Ninad Kamat
CERTIFIED FINANCIAL PLANNER^{CMwww.letsmakeaplan.in}facebook

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Money Is not Everything...

After reading Wealth can only be created some time back you might think why I am saying - Money is not everything, now. Of course, money has its own role to play, but don't give too much power to money. It’s not just money that makes things work; people have power in their determination. Many of the big demonstrations that have happened in the world, big changes that have come through in the world, they didn't happen through money.

When Mahatma Gandhi started this big movement in India, he didn't do it because of money. It was a vision and it is this vision that takes you along. Money has its role to play, but don’t think money is everything.

Money can help us be more effective in our service and help it expand, needing to attract money to sustain yourself keeps you grounded and connected with meeting the true needs of society. Money creates relationships with those you share it with, and relationships can help your spiritual development. Money can be a wonderful mirror for you to see yourself more clearly.

"When our hearts are pure, our intention is clear and the work is good, resources will come. When it is needed, as much is needed, it will simply come." ~ Spiritual Guru

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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How to connect with the right Financial Planner(Part II)

The biggest issue one faces in hiring a Financial planner is “Trust”, so you need to build a great level of trust with the Financial planner and for that you need to interact with him, spend time with him, get references from family and friends and once you are satisfied you can then hire him/her. A financial planner at the end is someone who is also interested in educating you and not just making money from you. Just imagine a doctor who gives you medicine, but does not tell you the preventive measures to take, so that you are not ill next time. Would you like to visit him again? He should be interested in educating you up to a level where you can take informed decisions yourself. Only then you can call him a good doctor, the same applies to a financial planner.

Unmask the Poser Smart questions to ask a financial planner and the answers he should be giving you Q. What qualifies you to be a financial adviser? A. I am a certified financial planner (CFP) or I have a certificate from Irda/Amfi/National Institute of Securities Markets. (A CFP is better qualified to manage a portfolio). Q. Do you have relevant experience? A. Yes (Make sure you are not the guinea pig. The years do not matter so much as the kind of exposure and profiles he has handled in the past). Q.Can you give references from current clients? A. Yes (Speak to at least two existing clients to ensure you get quality service). Q. Will you draw up a service agreement? Will the advice be given in writing? A. Yes, and the advice will be recorded in writing. Q. Is my fee your only source of income? Do you get commissions for the products you recommend? A. Client fee is my only source of income. I do not earn commissions on the products I recommend.

Current Status of Financial Planning Practice in India

There are three ways a Financial Planner in India makes money:

1. By pure consulting and advising (by making the financial plan)
2. Through Commissions (from products sold to clients) 

3. Combination of 1 and 2


So what you have to look for while hiring a financial planner is that He/She should be an Independent Financial planner and  has no compulsion of executing the plan through him. There should be freedom in Clients hand that he/she can execute the plan from anywhere he/she wants. As an additional service the Financial planner can give an option to have financial plan executed through them, but it should never be compulsory, as otherwise there will always be some level of biased attitude while recommending products to you.

How much to Pay:
This is a debatable topic, still let’s try to understand and find out how much do Financial Planners deserve.
Financial Planners in US and Australia get as much as $150 to $200 per hour. (that’s close to 7.5k – 10k per hour). Financial Planners in India cannot and should not ask for that kind of money for two reasons:

 

1. They will not get it 

Financial Planning is new in India and there is still no standard procedure to create a financial plan. So what they can expect is not more than $30-$40 max per hour.

Now in India people will laugh if a Financial Planner asks money in per hour basis, it’s just not what Indians can imagine. We Indians like to pay one time fees or lump sum fees, that’s the model India runs on. A good financial plan takes around at least 10-12 working hours (strongly focused and distributed across several days). From that point of view a price range of 10k – 25k looks reasonable for a Financial plan. Anyone who is charging less than Rs 10,000 is undervaluing it and working more for less money. Other point is, you have to understand that all financial planners differ from each other and the amount of detail and care they take while creating it.

BE SMART

Certifications from Amfi and Irda are essentially a licence to sell a certain financial product, while a certified financial planner, or a CFP, is a qualified adviser. It is important to distinguish the two. Better to pay for good advice then act on free advice that is biased.

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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How to connect with the right Financial Planner(Part I)

As a blogger, there is no specific time/date/place where you will get an idea to write about( I know I've said this before).

Like this: Ironing my office going clothes in the morning has been a ritual for the past 8 years. These 10-12 minutes are also where some of the ideas for this blog pop up. Here is one interesting topic that came up the other day I would like to share with you.

Are you looking for Financial Planner/Advisor? If you are, you should go through this post that talks about almost all the necessary information you need before hiring a financial advisor. Most investors are confused about simple things like, where to find a good financial planner/advisor, what they should expect from him and most importantly they do not understand the financial planning environment in India. There are lots of myths and misunderstandings around the financial planning field and this post will give you most of the basic information you need to be aware of, while hiring a Financial Advisor.

First things first:

Who is a Financial Planner:

A financial planner is a professional who helps his clients to deal with various personal finance issues through proper planning. Just like we have a doctor for our physical problems, we have Financial planners/advisors for our Financial problems. Just because you know “what is a Mutual fund” or some “Tax laws” or can buy and sell stocks on Stock market, it does not mean that you don’t need a Financial planner. Financial Planners are professionals who have got the requisite qualification, have learned strategies and have in-depth knowledge and experience to understand how to structure/restructure a common man’s financial mess and come up with a sound long term plan which will help a client achieve his/her financial goals in future.

Just like CA, MBA, CS and other professional certifications, there exist a certification for Financial Planning which is called CFP (Certified Financial Planner). Read more about CFP Here. CFP is regarded as the top most qualification in Financial Planning  and it is recognized worldwide.

Who is not a Financial Planner:

A lot of CA’s, CS’s, MBA (finance), CFA, ICWA and other Finance related professionals feel that they are the right professionals to do Financial planning for individuals. Just because “Financial Planning” or “Personal Finance” has “finance” word associated with it; does not mean that any one from different finance field can be a Financial Planner. Financial Planning is very different from what CA, CFA or a MBA Finance does.

Financial planning deals with individual personal finance, his future financial goals, the risk taking appetite. Having  CFA or MBA (finance) as qualification will definitely help at some level and may be some CA’s, CFA’s or MBA (Finance) have a great understanding of Financial Planning, but it’s not true for everyone in general. In the same way, any ULIP Agent, Insurance Adviser or Mutual funds agent, Wealth Manager, PMS guy is not a Financial Planner. These people are there to assist a Financial Planner to sell the products. In the analogy of Medicine field, Financial Planner is a Doctor and all these agents, Wealth managers etc. are like Pharmacists.

There are two ways of hiring a Financial Planner:

1. Hiring a Financial Planer

In case you want to hire a CFP (which is recommended) you can get a list of CFP’s in India at FPSB website link.  You can find out CFP based on

• Name/Company
• City/State
• Nature of Employment

Tip: You should search for CFP’s who are “Independent Financial Planners” or “Self Employed”. 

2. Hiring a non-CFP

You can also hire a non-CFP but you have to be very careful while doing that. Before CFP certification came to India, we had excellent planners in the Industry who understood the financial planning process subconsciously and still practice that but without having the CFP certification. They can be from various backgrounds but can have sound financial planning knowledge. They are a rare species.

To be continued....

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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Why ULIP's are bad for your financial life.

Flashback...चार साल पेहले...

The row between the Insurance Regulatory and Development Authority (IRDA) and the Securities and Exchange Board of India (Sebi) is turning into an arm-wrestling match between two statutory bodies with huge clout. The chain of Sebi's argument goes like this: Life insurers offer unit-linked insurance plans (Ulips), Ulips invest in equity, hence, Sebi wants Ulip schemes registered like mutual funds. IRDA has no intention of ceding control. Since both regulatory bodies have clout, they will eventually work out some compromise.

और अब And Now....

The so-called turf-war on ULIPs that SEBI and IRDA have been fighting has now taken a life of its own. In reality, just about the least important thing is who regulates ULIPs, while the most important thing-or rather, the only important thing-is that investors understand what they are getting into and make the choices that are best for them. I find that there's a great deal of misinformation floating around about ULIPs and why exactly are so called investment - insurance advisors in favour of them.

Perception: ULIP expenses have been lowered by IRDA. Expenses are now down to just 3 per cent for ULIPs of up to 10 years and 2.25 per cent for longer ones. Mutual funds, by comparison, have higher fund management charges.

Reality: The way IRDA has framed the rules, 2.25 or 3 per cent is effectively the average over the entire lifetime of a ULIP. The charges are heavily front-loaded. During the first year, these charges are as high as 40 to 70 per cent. If the customer cannot continue with a policy for any reason, then his real expenses are far higher. And as it happens, a huge proportion of policies lapse during the earlier years. The front-loading has no logic, except to enrich insurers and agents. And fund management charges being lower than mutual funds is a not a full comparison. In mutual funds, total expenses are capped at 2.25 per cent for equity funds and less for other funds. These are not comparable to the fund management charges of ULIPs because ULIP customers also pay premium allocation charges, policy administration charges, mortality charges, and for guaranteed ULIPs, guarantee charges. Comparing fund management charges alone is a joke.

Perception: ULIPs have led to a massive rise in insurance penetration in India.

Reality: Insurance means insurance, in the sense when the insured person dies, his family gets money to pay for food, rent and education. In a country with minuscule social security as ours, the growth of insurance has to mean the growth in the reach and quantum of risk cover for lives. To call a non-insurance, market risk-bearing product such as ULIP insurance and then present it as evidence of the growth of insurance is simply dishonest.

Ulips have been around for several years. The structures are known. Almost every financial newspaper and business magazine of repute has analysed Ulips and shown in detail why investors should avoid them.In themselves, Ulips are not fraudulent; it's just that investors can get far better deals. So this is a classic case of “buyer beware”. If investors insist on buying Ulips, there isn't much more that can be done since there are already ample warning signs in the public space. It is also easy to understand why agents push Ulips - due to huge front-loaded commissions.

Having said that, the mistake investors make, is to confuse insurance with investment. Insurance is a bet you want to lose. Investment is a bet you want to win. 

Two entirely separate intentions. Use two different instruments.

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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Image Source: GKtoday.in

Why You need Health Insurance

Consider this : 

In Bengaluru, consultant architect Francis Jackson had to rush to the hospital in January this year as he complained of shooting pain in the abdomen. Sure enough, it was diagnosed as a kidney stone and Francis had to undergo surgery for the same.
The cost of the procedure and stay at hospital was Rs 75,000.

Thankfully he didn’t have to shell out a single rupee, as he was covered under a Health Insurance plan with a limit of up to 3 lacs.

What is Health or Medical Insurance ?
The term health insurance is generally used to describe a form of insurance that pays for medical expenses. It is sometimes used broadly to include insurance covering disability or long-term nursing or custodial care.

To understand it in simple words, you pay some amount of premium every year to a company, and if some thing happens to you, like an accident or if you have to undergo a surgery, the company will reimburse/pay for it, provided the illness is covered under the Health Insurance Plan.


Why do I need a Health Insurance ?
This is the most common thing you can hear from a person who wants to avoid Health Insurance, but its one of the most important part of any financial portfolio or plan. People concentrate on the fact that, what if nothing happens to them, but they fail to imagine the situation when some thing can actually happen.

The human body is a complex thing, and no one knows what can happen in future, even things like accident is not in your hand , you can take try to avoid it, but what about others, what if some car hits you? What if accidentally you fall from some place? It can happen and it does happen, and when you have to pay a hefty bill for the treatment, you will soon realise that its a good idea to get covered by paying a small premium every year, rather than spending your hard earned savings.

Why is Health Insurance more important now as compared to earlier years
Yes , Health care costs have increased many fold in last 20-30 yrs. Also now, more and more young people are complaining of heart and other diseases which were seen in older people earlier. Because of high stress jobs, poor eating habits and other similar problems, rise in the number of cars, pollution etc, the probability of getting some illness or meeting with an accident has increased substantially compared to earlier days.

What can you do..

• Get a good coverage for diseases and surgeries.
• You have to pay the premium annually for which you can plan ahead, set up a Recurring Deposit A/c or start an SIP in a Liquid fund to set aside money for your annual premium.
• You get tax deduction under section 80D up to Rs 15,000(subject to IT Rules)
• You can also go for group insurance(family floater), its ideal for a family with spouse, parents, kids … With group Insurance every one is covered and you pay less premium , also its more advantageous because there are many things which are covered in group insurance and not single person health insurance.
• Do some online research and choose the product.

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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Wealth can only be created...........

Hello everybody, A couple of week's back I had an interesting conversation with my cousin who works for a very very reputed IT company in Bangalore. As we were discussing about personal finance, financial awareness and of course this blog, I happened to ask him if he would be interested in writing a guest blog for my readers, to which he promptly agreed.

So, here is what Prabhav has to say about his experience with personal finance:

"Wealth can only be created not earned" something which I recently heard on a financial news channel. How true!

First of all my introduction. My name is Prabhav and I am Ninad's cousin. I am an engineer and not related to the field of personal finance, but I do have a basic understanding of different financial products.

Until I started earning, I did not even know that a concept of financial planning existed. It is only when I was planning my taxes, I came upon this concept.

It was summer of 2008, when I was filing my tax returns for the first time. It was a horrible experience. I was too late to do any tax saving investments as I had not done any for the whole year. Why was I in this situation? It could be attributed to only two things...lack of knowledge and lack of planning.

I had to first get knowledge and start planning so that I didn't end up in a similar situation in 2009. First, I went for advice from my friends and family and asked them how they are doing their tax planning. I was shocked that some of them were in same situation as mine year after year even after working for more than 5 years. Some struggled at the last moment to do tax savings (lack of planning) and some did not bother(worst case of laziness).

Without any proper solution, I started researching on my own. It took me some time to understand that only equity investments can help me create wealth in the long term (it is not rocket science. A simple calculation will show you that). I was intrigued by the concept of SIP. It was  quite simple, as the amount to be invested was small and I could invest on a monthly basis. I also came upon some tax calculators which were quite helpful. Now I was equipped with knowledge about how my investments would flow and also a plan. I had identified the correct amount that I needed to invest every month and started a SIP in a tax saving equity mutual fund. Until then the only tax saving I was doing was putting money (cannot be called investing) in an endowment plan. 

The following has been my investment strategy for last few years:

1.Monthly SIPs in Equity Mutual funds for tax savings.

2.Monthly SIPs for additional investments in MFs and ETFs to meet my financial goals (thanks to Ninad for his help)

3.Monthly RDs to accumulate money for yearly payment of Insurance policies (term plan and health insurance)

Once you get a hold of things, all your investments are quite easy to manage. There is a certain feeling of elation when you see your money grow steadily over the years; your money working harder than you, helping you achieve your goals!!

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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Sketch is sourced from Carl Richards of behaviourgap and is used with prior permission of the creator. It is subject to copyright.