W e've grown up with the idea that a penny saved is a penny earned. While this adage may have worked two decades ago, it doesn't necessarily hold true today. One has to now understand the idea of savings in the context of inflation and how we can use savings as a resource to create wealth. Inflation is the difference between the cost of living in terms of goods and services and one's purchasing power. The higher the inflation, the lesser the value of the money you hold. So you're able to save less. To understand how inflation works a little better - let us take the example of a burger which cost about Rs. 50 rupees in 1999. 20 years on, factoring only inflationary increases, this same burger is now priced at Rs 159. This is just a simple indicator to map how inflation affects prices and hence, impacts an individual’s purchasing power and financial health. Getting started: Upgrade your 'savings mindset' and adopt a more proactive approach that will make your money work both harder and smarter. Investing is an approach that can help you do this. It will allocate your money to financial instruments which grow your money for you. Investing your money in mutual funds is smart as well as an easy way to do this. A mutual fund is a collective pool of money put together by individuals and organisations and managed and invested by an expert, usually referred to as a fund manager, on behalf of the collective. Mutual funds are well-regulated (by SEBI in India) investment products of many types and categories, meant to cater to the varied investment needs of everyone. So how does one begin? SIPs or systematic investment plans are a good way to start investing a fixed amount of money every month in a mutual fund. This way, you can start with a small amount, and increase it as your income increases. The key to this journey is to have a clear, time-bound and goal-oriented financial plan and being disciplined enough to fulfil it through a regular and timely SIP. The major short-term task is to stick to a budget that is workable, along with creating an emergency fund as soon as possible. In the medium term, you can prioritise goals such as children's higher education or owning a house. For the long term, a non-negotiable goal would be to enable a comfortable retirement, so that you don't need to compromise on your lifestyle and continue to meet your needs comfortably. Lifespan is increasing and we may well need to plan for 30-40 years after retirement. Accumulating your savings in a bank account or even a fixed deposit is not going to be enough. Create a corpus that both facilitates the present, and ensures the future. Regular investments through mutual funds is the one simple habit that can help ensure a lifetime of financial freedom. Vete Associates TAX & INVESTMENTS CONSULTANTS PVT. LTD. November 2019 VOLUME: 05 | | ISSUE: 01 | THANE | 4 PAGES | RS.2.00 B-100, Rutu Business Park, Near Brindaban Society, Thane 400 601 Tel. No.: 022-25342708 / 022 - 66888666 / +91 8879922212/13 Toll Free No.: +91 9669888666 Email: [email protected]Website:www.veteassociates.com Financial Planning Estate Planning Insurance, Taxation Mutual Funds, Fixed Deposits Service Facilitator - TJSB Online Trading on BSE & NSE RNI No.: MAHENG/2015/65321 Published on 7 th of every month P2 P3 P4 IN THIS ISSUE 4 steps to protect your family financially Four financial mistakes to watch out for in your 40s Is your mutual fund holding too much cash? Don’t just save, do more with your money Vete Associates` Wealth Formula
Transcript
We've grown up with the idea that a penny saved is
a penny earned. While this adage may have worked two decades ago, it doesn't necessarily hold true today. One has to now understand the idea of savings in the context of inflation and how we can use savings as a resource to create wealth. Inflation is the difference between the cost of living in terms of goods and services and one's purchasing power. The higher the inflation, the lesser the value of the money you hold. So you're able to save less.
To understand how inflation works a little better - let us take the example of a burger which cost about Rs. 50 rupees in 1999. 20 years on, factoring only inflationary increases, this same burger is now priced at Rs 159. This is just a simple indicator to map how inflation affects prices and hence, impacts an individual’s purchasing power and financial health.
Getting started: Upgrade your 'savings mindset' and adopt a more proactive approach that will make your money work both harder and smarter. Investing is an approach that can help you do this. It will allocate
your money to financial instruments which grow your money for you. Investing your money in mutual funds is smart as well as an easy way to do this. A mutual fund is a collective pool of money put together by individuals and organisations and managed and invested by an expert, usually referred to as a fund manager, on behalf of the collective. Mutual funds are well-regulated (by SEBI in India) investment products of many types and categories, meant to cater to the varied investment needs of everyone.
So how does one begin?SIPs or systematic
investment plans are a good way to start investing a fixed amount of money every month in a mutual fund. This way, you can start with a
small amount, and increase it as your income increases. The key to this journey is to have a clear, time-bound and goal-oriented financial plan and being disciplined enough to fulfil it through a regular and timely SIP. The major short-term task is to stick to a budget that is workable, along with creating an emergency fund as soon as possible. In the medium term, you can prioritise goals such as children's higher education or owning a house. For the long term, a non-negotiable goal would be to enable a comfortable retirement, so that you don't need to compromise on your lifestyle and continue to meet your needs comfortably.
Lifespan is increasing and we may well need to plan for 30-40 years after retirement. Accumulating your savings in a bank account or even a fixed deposit is not going to be enough. Create a corpus that both facilitates the present, and ensures the future. Regular investments through mutual funds is the one simple habit that can help ensure a lifetime of financial freedom.
P A P T E T I E
P O M C O O S I I T N
W E A R A S E N S
L U N R V A E B I I L Y T
D O N T C I I N O
Printed, Published and Edited by NITIN RAMAKANT VETE on behalf of VETE ASSOCIATES TAX AND INVESTMENTS CONSULTANTS PVT. LTD., Printed at GOOD ARTS PRINTING PRESS, 118, SHREE HANUMAN INDL. ESTATE, 42-B, G.D.AMBEKAR MARG, WADALA, MUMBAI 400 031 and Published from VETE ASSOCIATES TAX AND INVESTMENTS CONSULTANTS PVT. LTD. B-100, RUTU BUSINESS PARK, NEAR BRINDABAN SOCIETY, THANE 400 601 Editor : NITIN RAMAKANT VETE
Vete Associates
TAX & INVESTMENTS CONSULTANTS PVT. LTD.
Disclaimer : All possible efforts have been taken to present factually corrected data. However, the publication is not responsible, if despite this error may have crept in inadvertently or through oversight. This booklet has been prepared by Vete Associates Tax And Investments Consultants Pvt. Ltd. and is meant for use by the recipient and not for circulation. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. All Investments are subject to the financial and other details provided by the company or Government body or Post Office or AMC etc., to be fully understood and read by the investor before investing and we as a publisher shall not be responsible in any manner whatsoever. Insurance is a subject matter of solicitation.
B-100, Rutu Business Park, Near Brindaban Society,Thane 400 601 Tel.No.:022-25342708 / +91 8879922212/13
RNI No.: MAHENG/2015/65321Published on 7 th of every month
Postal Registration No.:THC/175/2019-2021Published on 7th of every month. Posted at Mumbai Patrika Channel Sorting Office, Mumbai GPO 400001 on 9th & 10th of every month.
P2
P3
P4
IN THIS ISSUE
4 steps to protect your
family financially
Four financial mistakes to
watch out for in your 40s
Is your mutual fund holding too
much cash?
Every mutual fund scheme comes with a mandate to invest in certain type of
securities. And at all times, as well. But every mutual fund scheme is allowed a tiny part of its portfolio in cash. This is allowed in order to meet redemptions or any ‘buy’ opportunities that the fund may come across on any day. Usually, equity funds hold cash between 1% and 5% of a fund’s corpus, though some funds can hold as high as 7-10% of their corpus in cash. Some funds prefer to hold larger portions of their portfolios in cash because their mandate allows them to hold high
cash levels if-as per their analysis-good stocks are not available at desirable valuations. Few others like dynamic equity funds also hold higher cash if they feel equity markets are overheated.
Equity funds usually have low cash levels as these schemes are vehicles meant for long-term investments. Debt funds have a larger allocation to cash and cash equivalent instruments as investors usually invest for the shorter term here and therefore there is a bigger chance of redemption in debt funds. Whether or not a fund ought to hold cash is a subjective call.
Don’t just save,do more with your money
Is your mutual fund holding too much
cash?
Vete Associates`Wealth Formula
Mutual fund investments are subject to market risk, read the scheme related documents carefully before investing.Mutual fund investments are subject to market risk, read the scheme related documents carefully before investing.
Vete Associates` Wealth FormulaNovember 2019 3
Portfolio tiltELSS must be evaluated
for its portfolio stability, valuation of the portfolio as an aggregate, and attractiveness from a forward-looking return expectation.
Stocks’ concentrationThe number of stocks
in the portfolio and the percentage of the portfolio in the top five stocks give an idea of concentration risk. Too concentrated a portfolio means that the impact of underperformance of a few stocks can have a significant impact on the portfolio.
Return consistencySelecting the previous year’s
best performer is probably not the best way to select an ELSS. Different strategies and styles work in different market situations. Select the scheme based on your comfort with the portfolio strategy and not based on the historical returns alone.
Investment horizonEven though the lower lock-
in period for ELSS of three years is often touted as an advantage in comparison to other tax-saving products that have longer lock-in periods, investors should ideally look at a longer period of holding to benefit most from appreciation in equity investments.
Include in overall planThe decision to invest in
ELSS should not be an isolated one but taken in the context of the individual’s financial situation and goals. See whether there is room to accommodate an ELSS after considering all the expenses. Then check how additional equity investment fits into your asset allocation. Compare the ELSS to the other equity funds held so that there is no duplication in style and portfolios.
Five things to keep in mind
before choosing an ELSS
4 steps to protect your family financiallyB.Com, LLB, CFPCM, RFC
Nitin R. Vete
Four ‘must have’ insurance covers in your
portfolioLifeIf you have financial
dependants, it’s important to insure your life. The best way to do that is to buy a pure term cover, which is the cheapest in the market because it only charges the cost of insurance. Experts suggest you should have a cover equal to at least 12-15 times your annual expenses or 8-10 times your annual income.
HealthWith skyrocketing
hospitalization costs, buying sufficient health insurance is a must. Start with buying a basic indemnity policy that pays for your hospital bills and also reimburses for the expenses incurred before and after hospitalization.
Personal accidentYou can never foresee
an accident but you can be financially prepared to meet the costs that come with the treatment. Having a personal accident cover will compensate for the loss of income in case you are physically disabled or require complete rest for a certain time period.
MotorWith the latest
amendments to the Motor Vehicles Act, not having third-party motor insurance would mean paying a huge penalty, but this policy pays for damages caused to the third party only. It’s advisable to opt for a comprehensive policy that covers your liability towards the third party as well as pays for damages to your car and the people travelling in it in case of someone’s death.
Four financial mistakes to watch out for in your 40s
Vete Associates` Wealth FormulaNovember 2019 2
The 40s mark a pivotal point in an individual’s financial journey. The 40s are when most people reach a sweet spot in their personal
finances with their incomes going up and expenses stabilizing. It is a time when people look at giving a decisive push to their saving and investment plan to meet many of the big-ticket goals which are not that far away. This stage of money life is also one where the ability to rectify mistakes is restricted because there is only limited time available to make amends. It is, therefore, the time to secure your financial health and pave the way to a better future. To be able to do that you should recognize some common errors that show up in your financial situation in the 40s that you should watch out for and rectify as soon as possible.
Not investing right
A portfolio of investments that is too safe may be a disadvantage as you enter the stage of high income and savings growth. Goals such as retirement have many years before they have to be met and they can benefit from growth assets such as equity. Even goals like education of children have enough years ahead to benefit from equity investments. If your savings are not working hard enough and earning better returns, then that will affect the amount you are able to accumulate for the goals and may even fall short of what you need. This may mean that your contributions to the goals have to go up and take away savings assigned for other goals. One way to prevent this is to adjust your investment plan as your financial security increases in your 30s. Take greater allocation to growth assets so that you have a base on which you can build in the 40s. Another common portfolio error that can be difficult to deal with in the 40s is one that is skewed towards real estate. If your money is tied up in real estate, you may have to borrow to meet goals. The interest and repayment obligations will take away from the available income and limit how much you can invest and benefit from growth at this stage.
Undisciplined spendingHigh consumer loan or credit card debt can
hold you back in the 40s. The repayment is a drain on savings and takes away from the investments that you could otherwise make. Have a plan in place to pay down debt quickly. Focus on high-
cost debt and consider tax benefits available on some debt such as mortgages while deciding which loan to tackle first. Most people in their 40s will be servicing mortgages and it is important to bring debt down quickly so that the savings can be channelized towards goals. A tight budget to find additional savings and allocating them between debt and investments is what we recommend. One way to determine if you are on track on reducing
debt is to check if the proportion of income that is going towards
servicing debt is coming down steadily.
Not prioritizing goalsRetirement may be
the last in terms of time sequencing of goals but it is the most important at this stage. People in the early 40s can straddle both goals—retirement and children’s education. Maximize your retirement contributions to mandatory schemes where you may have employer contributions and tax benefits but don’t assume that’s enough. Check the corpus you would need and see if your retirement savings and investments are adequate to get you there. If not, this is the time to supercharge savings to take advantage of the time still available to retirement and invest in growth assets like equity. The education of children is another important goal that has to typically be met in this decade. Ideally, you should start investing for this goal when children are young.
Ignoring emergenciesAn emergency fund, medical insurance and
medical corpus are required for protection of income, along with life insurance. Not having an emergency back-up can have serious consequences at that age, especially if it is a single-income household. Otherwise, you may end up using your long-term investments during times of emergency and derail other goals. Insurance is another important protection against the unexpected at this stage. Adequate life insurance and emergency fund that reflects current income and level of expenses, goals and liabilities is important. The insurance cover provided by the employer or policies taken when you were younger may not be enough now, with your needs changing with age. Review the existing cover and update it as required. It is best to opt for protection plans that give the cover required at the best price.
Start with paying off your debtWith growing aspirations, debt has become
a part of our lives. Whether it is a home loan, personal loan, car loan, consumer durable loan or credit card loan, a majority of people need to take some kind of loans in their lifetime to realize their dreams as well as to meet their short or long-term needs. However, while borrowing is helpful in some circumstances and can also help you acquire some assets and build wealth-like taking a home loan to buy your dream home or taking a business loan to expand your business-not all types of debt are good for your financial health. In fact, mismanaged debts can also cause immense mental stress, apart from affecting your financial well-being. Therefore, before embarking on your journey to build your family fortune, it is vital for you to pay off all your debt, especially high-interest and bad ones like personal loans and credit card debt, while you can take your own time to clear your home loan, for instance, which is taken for a long term and considered good debt for many reasons.
Manage your financesApart from having a good debt strategy, you
also need to acquire some skills to manage your finances well. That is because in today’s times, when nothing is certain and anything can happen to one’s savings, investments and accumulated wealth, it has become crucial for everyone to learn the tricks of money management-especially, how to live within one’s means, how to create a budget, how to remove unnecessary expenses, how much to save and invest, how to keep one’s money safe, how to consolidate one’s debt, among others. Learning the art of money management is not only good for your financial health as well as the financial future of your family but will also improve your mental health by lowering your stress levels.
Take adequate insurance
The future is uncertain and nobody knows
what the future holds for one. For instance, you may be earning well enough to take care of your present as well as future needs. However, what if something untoward happens to you? How long will your savings last? Who will take care of your family if you say goodbye to this world or get permanently disabled because of an accident? Insurance-particularly life insurance-can come to your rescue in such cases. In fact, anyone who has dependents and is the sole breadwinner of the family needs life insurance. That is because life insurance can not only help you generate a sufficient nest egg for your future needs but can also give your family full financial protection in case you are not around. If you have just started earning or your income is not enough to take an endowment plan as per your needs, or in case you want to keep savings and protection separately, then you should go for a term insurance plan which offers comprehensive protection for your family. The best thing about term insurance is that it is cheaper and most affordable, which can help you take adequate coverage for future needs. Apart from life insurance, you should also take health insurance for yourself as well as each member of your family, so that you are not financially strained in case someone falls sick. However, in all types of life and health insurance, it is advisable to begin as early as possible to keep your premium low.
Have an emergency fundIn this uncertain world where there are
frequent job losses and other unpleasant incidents, it has become vital for everyone to
have an emergency fund in one’s portfolio. Such a fund will not only help us meet unexpected expenses, but can also help us tide over a family crisis. So, it is reckoned that you should keep some money in a bank account or liquid funds, which should be able to cover at least 3 to 6 months of living expenses. In case of a job loss also, such a fund will come handy as it may take some time to get a new job.
Everyone wants to keep one’s family protected. However, not many are aware of how to do so and where to begin, especially financially.
Some people think that just making both ends meet and protecting their family physically is enough, while some others strive to build a fortune in a bid to secure the financial future of their family. However, for doing that, just saving and investing is not enough, as the future is always uncertain and anything can happen to someone that can turn one’s financial goals topsy-turvy. Therefore, you need to do many other things also to protect your family not only financially, but also from unforeseen circumstances. Here are four smart ways to do that:
Mutual fund investments are subject to market risk, read the scheme related documents carefully before investing.Mutual fund investments are subject to market risk, read the scheme related documents carefully before investing.
Vete Associates` Wealth FormulaNovember 2019 3
Portfolio tiltELSS must be evaluated
for its portfolio stability, valuation of the portfolio as an aggregate, and attractiveness from a forward-looking return expectation.
Stocks’ concentrationThe number of stocks
in the portfolio and the percentage of the portfolio in the top five stocks give an idea of concentration risk. Too concentrated a portfolio means that the impact of underperformance of a few stocks can have a significant impact on the portfolio.
Return consistencySelecting the previous year’s
best performer is probably not the best way to select an ELSS. Different strategies and styles work in different market situations. Select the scheme based on your comfort with the portfolio strategy and not based on the historical returns alone.
Investment horizonEven though the lower lock-
in period for ELSS of three years is often touted as an advantage in comparison to other tax-saving products that have longer lock-in periods, investors should ideally look at a longer period of holding to benefit most from appreciation in equity investments.
Include in overall planThe decision to invest in
ELSS should not be an isolated one but taken in the context of the individual’s financial situation and goals. See whether there is room to accommodate an ELSS after considering all the expenses. Then check how additional equity investment fits into your asset allocation. Compare the ELSS to the other equity funds held so that there is no duplication in style and portfolios.
Five things to keep in mind
before choosing an ELSS
4 steps to protect your family financiallyB.Com, LLB, CFPCM, RFC
Nitin R. Vete
Four ‘must have’ insurance covers in your
portfolioLifeIf you have financial
dependants, it’s important to insure your life. The best way to do that is to buy a pure term cover, which is the cheapest in the market because it only charges the cost of insurance. Experts suggest you should have a cover equal to at least 12-15 times your annual expenses or 8-10 times your annual income.
HealthWith skyrocketing
hospitalization costs, buying sufficient health insurance is a must. Start with buying a basic indemnity policy that pays for your hospital bills and also reimburses for the expenses incurred before and after hospitalization.
Personal accidentYou can never foresee
an accident but you can be financially prepared to meet the costs that come with the treatment. Having a personal accident cover will compensate for the loss of income in case you are physically disabled or require complete rest for a certain time period.
MotorWith the latest
amendments to the Motor Vehicles Act, not having third-party motor insurance would mean paying a huge penalty, but this policy pays for damages caused to the third party only. It’s advisable to opt for a comprehensive policy that covers your liability towards the third party as well as pays for damages to your car and the people travelling in it in case of someone’s death.
Four financial mistakes to watch out for in your 40s
Vete Associates` Wealth FormulaNovember 2019 2
The 40s mark a pivotal point in an individual’s financial journey. The 40s are when most people reach a sweet spot in their personal
finances with their incomes going up and expenses stabilizing. It is a time when people look at giving a decisive push to their saving and investment plan to meet many of the big-ticket goals which are not that far away. This stage of money life is also one where the ability to rectify mistakes is restricted because there is only limited time available to make amends. It is, therefore, the time to secure your financial health and pave the way to a better future. To be able to do that you should recognize some common errors that show up in your financial situation in the 40s that you should watch out for and rectify as soon as possible.
Not investing right
A portfolio of investments that is too safe may be a disadvantage as you enter the stage of high income and savings growth. Goals such as retirement have many years before they have to be met and they can benefit from growth assets such as equity. Even goals like education of children have enough years ahead to benefit from equity investments. If your savings are not working hard enough and earning better returns, then that will affect the amount you are able to accumulate for the goals and may even fall short of what you need. This may mean that your contributions to the goals have to go up and take away savings assigned for other goals. One way to prevent this is to adjust your investment plan as your financial security increases in your 30s. Take greater allocation to growth assets so that you have a base on which you can build in the 40s. Another common portfolio error that can be difficult to deal with in the 40s is one that is skewed towards real estate. If your money is tied up in real estate, you may have to borrow to meet goals. The interest and repayment obligations will take away from the available income and limit how much you can invest and benefit from growth at this stage.
Undisciplined spendingHigh consumer loan or credit card debt can
hold you back in the 40s. The repayment is a drain on savings and takes away from the investments that you could otherwise make. Have a plan in place to pay down debt quickly. Focus on high-
cost debt and consider tax benefits available on some debt such as mortgages while deciding which loan to tackle first. Most people in their 40s will be servicing mortgages and it is important to bring debt down quickly so that the savings can be channelized towards goals. A tight budget to find additional savings and allocating them between debt and investments is what we recommend. One way to determine if you are on track on reducing
debt is to check if the proportion of income that is going towards
servicing debt is coming down steadily.
Not prioritizing goalsRetirement may be
the last in terms of time sequencing of goals but it is the most important at this stage. People in the early 40s can straddle both goals—retirement and children’s education. Maximize your retirement contributions to mandatory schemes where you may have employer contributions and tax benefits but don’t assume that’s enough. Check the corpus you would need and see if your retirement savings and investments are adequate to get you there. If not, this is the time to supercharge savings to take advantage of the time still available to retirement and invest in growth assets like equity. The education of children is another important goal that has to typically be met in this decade. Ideally, you should start investing for this goal when children are young.
Ignoring emergenciesAn emergency fund, medical insurance and
medical corpus are required for protection of income, along with life insurance. Not having an emergency back-up can have serious consequences at that age, especially if it is a single-income household. Otherwise, you may end up using your long-term investments during times of emergency and derail other goals. Insurance is another important protection against the unexpected at this stage. Adequate life insurance and emergency fund that reflects current income and level of expenses, goals and liabilities is important. The insurance cover provided by the employer or policies taken when you were younger may not be enough now, with your needs changing with age. Review the existing cover and update it as required. It is best to opt for protection plans that give the cover required at the best price.
Start with paying off your debtWith growing aspirations, debt has become
a part of our lives. Whether it is a home loan, personal loan, car loan, consumer durable loan or credit card loan, a majority of people need to take some kind of loans in their lifetime to realize their dreams as well as to meet their short or long-term needs. However, while borrowing is helpful in some circumstances and can also help you acquire some assets and build wealth-like taking a home loan to buy your dream home or taking a business loan to expand your business-not all types of debt are good for your financial health. In fact, mismanaged debts can also cause immense mental stress, apart from affecting your financial well-being. Therefore, before embarking on your journey to build your family fortune, it is vital for you to pay off all your debt, especially high-interest and bad ones like personal loans and credit card debt, while you can take your own time to clear your home loan, for instance, which is taken for a long term and considered good debt for many reasons.
Manage your financesApart from having a good debt strategy, you
also need to acquire some skills to manage your finances well. That is because in today’s times, when nothing is certain and anything can happen to one’s savings, investments and accumulated wealth, it has become crucial for everyone to learn the tricks of money management-especially, how to live within one’s means, how to create a budget, how to remove unnecessary expenses, how much to save and invest, how to keep one’s money safe, how to consolidate one’s debt, among others. Learning the art of money management is not only good for your financial health as well as the financial future of your family but will also improve your mental health by lowering your stress levels.
Take adequate insurance
The future is uncertain and nobody knows
what the future holds for one. For instance, you may be earning well enough to take care of your present as well as future needs. However, what if something untoward happens to you? How long will your savings last? Who will take care of your family if you say goodbye to this world or get permanently disabled because of an accident? Insurance-particularly life insurance-can come to your rescue in such cases. In fact, anyone who has dependents and is the sole breadwinner of the family needs life insurance. That is because life insurance can not only help you generate a sufficient nest egg for your future needs but can also give your family full financial protection in case you are not around. If you have just started earning or your income is not enough to take an endowment plan as per your needs, or in case you want to keep savings and protection separately, then you should go for a term insurance plan which offers comprehensive protection for your family. The best thing about term insurance is that it is cheaper and most affordable, which can help you take adequate coverage for future needs. Apart from life insurance, you should also take health insurance for yourself as well as each member of your family, so that you are not financially strained in case someone falls sick. However, in all types of life and health insurance, it is advisable to begin as early as possible to keep your premium low.
Have an emergency fundIn this uncertain world where there are
frequent job losses and other unpleasant incidents, it has become vital for everyone to
have an emergency fund in one’s portfolio. Such a fund will not only help us meet unexpected expenses, but can also help us tide over a family crisis. So, it is reckoned that you should keep some money in a bank account or liquid funds, which should be able to cover at least 3 to 6 months of living expenses. In case of a job loss also, such a fund will come handy as it may take some time to get a new job.
Everyone wants to keep one’s family protected. However, not many are aware of how to do so and where to begin, especially financially.
Some people think that just making both ends meet and protecting their family physically is enough, while some others strive to build a fortune in a bid to secure the financial future of their family. However, for doing that, just saving and investing is not enough, as the future is always uncertain and anything can happen to someone that can turn one’s financial goals topsy-turvy. Therefore, you need to do many other things also to protect your family not only financially, but also from unforeseen circumstances. Here are four smart ways to do that:
We've grown up with the idea that a penny saved is
a penny earned. While this adage may have worked two decades ago, it doesn't necessarily hold true today. One has to now understand the idea of savings in the context of inflation and how we can use savings as a resource to create wealth. Inflation is the difference between the cost of living in terms of goods and services and one's purchasing power. The higher the inflation, the lesser the value of the money you hold. So you're able to save less.
To understand how inflation works a little better - let us take the example of a burger which cost about Rs. 50 rupees in 1999. 20 years on, factoring only inflationary increases, this same burger is now priced at Rs 159. This is just a simple indicator to map how inflation affects prices and hence, impacts an individual’s purchasing power and financial health.
Getting started: Upgrade your 'savings mindset' and adopt a more proactive approach that will make your money work both harder and smarter. Investing is an approach that can help you do this. It will allocate
your money to financial instruments which grow your money for you. Investing your money in mutual funds is smart as well as an easy way to do this. A mutual fund is a collective pool of money put together by individuals and organisations and managed and invested by an expert, usually referred to as a fund manager, on behalf of the collective. Mutual funds are well-regulated (by SEBI in India) investment products of many types and categories, meant to cater to the varied investment needs of everyone.
So how does one begin?SIPs or systematic
investment plans are a good way to start investing a fixed amount of money every month in a mutual fund. This way, you can start with a
small amount, and increase it as your income increases. The key to this journey is to have a clear, time-bound and goal-oriented financial plan and being disciplined enough to fulfil it through a regular and timely SIP. The major short-term task is to stick to a budget that is workable, along with creating an emergency fund as soon as possible. In the medium term, you can prioritise goals such as children's higher education or owning a house. For the long term, a non-negotiable goal would be to enable a comfortable retirement, so that you don't need to compromise on your lifestyle and continue to meet your needs comfortably.
Lifespan is increasing and we may well need to plan for 30-40 years after retirement. Accumulating your savings in a bank account or even a fixed deposit is not going to be enough. Create a corpus that both facilitates the present, and ensures the future. Regular investments through mutual funds is the one simple habit that can help ensure a lifetime of financial freedom.
P A P T E T I E
P O M C O O S I I T N
W E A R A S E N S
L U N R V A E B I I L Y T
D O N T C I I N O
Printed, Published and Edited by NITIN RAMAKANT VETE on behalf of VETE ASSOCIATES TAX AND INVESTMENTS CONSULTANTS PVT. LTD., Printed at GOOD ARTS PRINTING PRESS, 118, SHREE HANUMAN INDL. ESTATE, 42-B, G.D.AMBEKAR MARG, WADALA, MUMBAI 400 031 and Published from VETE ASSOCIATES TAX AND INVESTMENTS CONSULTANTS PVT. LTD. B-100, RUTU BUSINESS PARK, NEAR BRINDABAN SOCIETY, THANE 400 601 Editor : NITIN RAMAKANT VETE
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IN THIS ISSUE
4 steps to protect your
family financially
Four financial mistakes to
watch out for in your 40s
Is your mutual fund holding too
much cash?
Every mutual fund scheme comes with a mandate to invest in certain type of
securities. And at all times, as well. But every mutual fund scheme is allowed a tiny part of its portfolio in cash. This is allowed in order to meet redemptions or any ‘buy’ opportunities that the fund may come across on any day. Usually, equity funds hold cash between 1% and 5% of a fund’s corpus, though some funds can hold as high as 7-10% of their corpus in cash. Some funds prefer to hold larger portions of their portfolios in cash because their mandate allows them to hold high
cash levels if-as per their analysis-good stocks are not available at desirable valuations. Few others like dynamic equity funds also hold higher cash if they feel equity markets are overheated.
Equity funds usually have low cash levels as these schemes are vehicles meant for long-term investments. Debt funds have a larger allocation to cash and cash equivalent instruments as investors usually invest for the shorter term here and therefore there is a bigger chance of redemption in debt funds. Whether or not a fund ought to hold cash is a subjective call.
