Quote ARN -99994 for all Equity/Debt and ELLS mutual funds
EUIN - E120123
It has been a while I wrote the first part of it the Investment Planning(types of investment). It is mandatory to know where you can invest before investing the some good options in that.
However before your financial planning you need to go through the articles Loans vs Investments ( to know your liabilities and life style) and know-about-insurance ( to know whether you have insured yourself well). That's why I wrote those 3 articles before writing this. Financial planning starts with your insurance as if you are not insured all your goals and wealth can be eroded without calling anyone with a single stroke of bad luck. You need to adequately cover for your life insurance and medical insurance to cover the emergencies.
I am not an expert in Portfolio management or financial planning but have some idea that I am sharing. My articles are just to make common people aware. Once you know the various jargon ,you can take help of any financial expert to make it better.
Main aspects of the planning are
1. To cover yourself enough for any medical/ life emergency.
2. To plan for your future and current liabilities.
3. To maximize and safe returns on your investments.
4. To create emergency corpus for meeting urgent/ unwanted needs
5. To create fund for your retirement.
Type of your investments depends upon your income, Age and liabilities in near and long term.
Planning:
1. Insurance - Cover your family with good medical insurance to cover medical exigencies and main bread earner with term life insurance plan. You need to have good life cover for all the earning members for your family so that any unfortunate event can be covered. Read how much you need to get in my know-about-insurance article. You should have at least covered your liabilities and 10 years of your income. You can reduce your cover if you have accumulated some liquid /disposable wealth and done away with your loans/liabilities.
2. Emergency fund - you should have liquid cash with you in form of FD's, Liquid funds, Short term debt funds or cash in savings account equivalent to at least 5-6 months of your monthly liabilities + some extra cash in case you loose job/ meet some accident or some other reason. Liquid funds are good for people in high income bracket to earn 6-7% tax free returns even on emergency funds.
Now comes your actual investments
3. Property:Some people like more to in Property than any other instrument. Why not if you have a good eye in recognising the same. Even the loan you take for this cause is good loan and not the depreciating one. But still keep in mind your liquidity in hand after all calculation for maintaining your daily life style and expenses. Do not overstress yourself for a longer period of time in lure of money as this is not a liquid asset.
There are also some benefits attached to housing loans
1. You have principal amount payments exempted from tax maximum upto Rs1 Lakh under 80C however this one lakh basket also includes other benefits like EPF, LI premiums , PPF and 5 yrs + FDs. If you are already saving one lakh in those then you can not claim it.
2. Interest payments max up to Rs 150000 are exempted from Tax after you get the possession for the first house you buy. If you have home loan on 2 houses then you can claim the entire interest amount from IT exemption without any limit on the 2nd house.
4. Debt and Equity investments: We have already discussed the various debt instruments in part -1. Most of the financial planners say you subtract your age from 100 to calculate how much fund should go in High risk like equities and rest into debts. They say over the period of times equities always give better returns. I somewhat but not completely agree with it because they always take last 5-10 years for equity markets where they definitely have outperformed. But these days seeing the life style of people and insecurity of jobs in pvt. sector substantial part of your investments must go into debt funds as they are not as much fluctuating as equities.
5.NPS: One should also look at this as it gives you flexibility of investing both in equities and debt under one umbrella. Investing in should be for your retirement not for day to day investments :). You can also save considerable amount of tax in case your employer endorses it.
Allocation
In my opinion people should allocate money based on their age, lifestyle, no of children ( their study and marriage expenses), Income, other dependents, other sources of income ( both temp and permanent) and inflation in mind.
While allocation we need to keep inflation in mind. For example the goods that we can buy now for 1000 Rs will not be the same after 20 years. Money you need for higher education of children will be doubled approximately every 7-8 years , similarly marriage expenses if your child is 5 years now and you think you need 500000 for his marriage now then it will be around 25-30 lakhs 20 years later. So plan accordingly
You also need to keep your retirement in mind while allocation of money.
Example If a person is 40 years of age , earning 10 L PA, having 2 children (5 and 10 yrs old). His monthly Saving is 15k and paying 20K EMI
He should have:-
Debt investments : 7.5 K (FD's, debt instruments, Secure NCD's or tax free bonds in case one wants to save it for very long term etc)
Equity 7.5K.. through SIP. in MIX of Large cap and Mid cap.
as his loan principal decreases and salary increases then he can allocate bit more in Equities..
Everyone has its own view and own situations. Once you know about the various investment avenues choose it as per your convenience rather than without knowing and going on someone's advice. Ultimately we do it for our mental piece with growth. Keep max 10-12% growth in your mind and do the allocations accordingly.
The person can divide his allocation for for different heads for his long term and short term need apart from his emergency fund. Emergency fun should always be parked in short term debt funds of FD's so that it can be liquidated any time.
E.G.
- Part for his retirement [ would suggest put 50-50 in debt and Equities, with increase in debt as the age grow]
- Study of 1/2 child [ for Short term in debt and Long term in Equities]
- Marriage of children [ for Short term in debt and Long term in Equities, slowly switching in debt]
Lot of planners are available like one in money control (http://www.moneycontrol.com/personal-finance/) where you can check if you want to save amount in defined years how much you should save with expected return.
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