Inflation is a money eater that reduces your purchasing power. For instance if the average rate of inflation is 8%, you need to make sure that your investments are earning a minimum of 8% or more, post-tax. Let us assume an investment portfolio of Rs. 1, 00,000, earning returns at 10% and inflation at 8%. The returns in this case would be Rs. 10,000 gross annually, with the net after income tax Rs. 7000 (Assuming you are in the highest tax bracket of 30%). Now if you account for the 8% inflation specified (8000, or 8% of Rs. 100,000), you are left with Rs. -1000 (Return of 7000 minus inflation of 8000)! The best way to grow a retirement corpus is to have a diversified investment portfolio according to the asset allocation designed for your risk profile. An ideal one would be 40% equity (blue chip), 50% debt, 5% gold, and 5% cash. Equity would help appreciate the retirement corpus. Debt investments would provide for regular income and gold would act as a hedge to inflation and equity turmoil. The recent equity market downturn was the perfect example for gold to stand out as a surge. Selective equity investments made for the long term are more often than not investments with high returns.

Equity: Do not sell blue chip stocks when the value increases. This should not be done when you planning for retirement. These stocks provide for the regular incomes by the way of dividends. At the same time if the dividends paid by the companies increase, it will reflect positively on the stock price too. The most crucial aspect that we never consider in an investment is the dividend that companies pay. We always look at just the capital appreciation. Dividend income in India is tax-free. The dividend payouts by all good companies grow proportionate to the growth in the net profit. It means that if you stay invested, your equity dividend income will keep growing year after year, compounded. If you think that the return on your capital is tiny compared to your investments, just be patient and watch out for a few years. Lets assume that your company’s dividend payout grows 20% year on year, in 10 years your dividend income will jump by more than 6 times and in 20 years it will go up by nearly 40 times. And if you consider the occupational windfall gains like rights and bonus issues, your dividend income goes up in compounding multiples over a period of time.

Your Investments should perform better than the market: Is it easy? Yes quite possible. The Bombay Stock Exchange has approximately 3000 shares listed on it but its index, the Sensex, is a weighted average representation of just 30 stocks. So, if the Sensex falls it is an indication that the heavy weights from the 30 stocks fell; not all the 3000 stocks. If your investment portfolio is to beat the Sensex, they will need to have a Beta more than 1. The Beta is a measure of sensitivity of a scrip movement relative to the movement of the benchmark index (in this case, the Sensex). A Beta of 1 means that for every 1% change in the index, your scrip moves by 1%. The caution here is that when you have a Beta of more than 1, your investments will also fall faster than the Sensex fall. Investments in stocks can be very rewarding but with high risk.

If you lack knowledge let mutual funds take care of it: I believe most of you investors who lack knowledge should rely on mutual funds, not individual common stocks. This is not because I think your performance will not be better; rather I think it will be easier for you to operate and will allow less potential for a catastrophe. Investments in mutual funds are managed by professionals who understand and study all the critical aspects before investing your money. This will help in proper diversification, but be sure of you choosing the right scheme to invest in as per your risk profile and aspirations.

Let your debt investments comprise of Government securities and highly-rated bonds (AAA): The most important component in a diversified portfolio is investment-grade fixed income. High-grade bonds and full-faith-and-credit-pledge government securities are the most reliable fixed-income counter balancers.

The balance between debt and equities is a function of (1) your age - the younger you are, the larger your equities percentage; (2) your financial resources; and (3) your need for current income. No two investors have exactly the same risk/reward profile.

Once your debt investments are in place, you need to make adjustments and additions from time to time depending on your changing needs and available new cash for investment. But you should keep rebalancing the portfolio according to your asset allocation strategy once a year.

Biggest mistake is investing based on events: You should never make investment decisions reacting to short term economic indicators or performance. You should build long-term wealth by investing in good companies with strong balance sheets and a history of paying and increasing dividends, and then you remain patient. You don’t jump in and out of stocks based on quarterly earnings reports. Base your investment program on business cycle trends, not market noise created by events.

You should not make many changes to your portfolio in the course of an average year. You should add money to some positions and tinker with others. You should not run from one idea to the next each time the economic wind changes direction.

I would like to urge all the investors reading this to begin weeding out your portfolio’s deadwood. Simplify and organize your investing, and practice the basic rules. As you start to see the profits rolling your way, you’ll be glad that you took the time to read this article to lay a solid investment foundation.

Kirtan Shah works at AmbestinQ Consultancy Services.

No doubt that investing in equity seems to be very attractive option for investment. Why it so? We hear many stories, some true, some fictitious, of people who have become millionaire overnight. But the fact is, earning money is not at all easy on the stock market. Let’s accept this simple fact that it is not everybody’s cup of tea. So, we have to be very objective about it.

It is well understood universally that a diversified portfolio is less risky and much safe than a concentrated portfolio.

In India, small-time investors usually have a very limited capital for investment. Therefore, it follows that it is a lot more difficult for this investor with limited capital to have a diversified portfolio. In other words it is not possible for small-time investors to invest directly in the market and to make their portfolio diverse.

So, how can small investors get the opportunity to make their portfolio diverse? The only option left is investing in mutual fund. Mutual funds offer a well-diversified portfolio even with just Rs 100.

A concentrated portfolio, also, could deliver high or low returns. This means that, again, it is against the small investors’ investment appetite normally. It would suit only selected expert investors with high net-worth.

One more thing to notice is that with limited capital it is difficult for small investors to buy shares with high prices like ICICI Bank, Infosys, Reliance, L&T, and other blue chip shares.
Again mutual funds seem to be the better route.
Let’s now discuss equity and mutual funds from a different perspective keeping in mind the common man’s objective.

Let us be honest as far as possible. Ask yourself the following Yes/No questions:

• Reading balance sheet of the company as a fund manager might do
• Identifying up-coming sectors
• Knowledge about companies, market, economics, and politics as a well-experienced professional fund manager might have
• Identifying the risk elements in an investment
• Predicting the future of the market as per any given scenario

If you have all of the above capabilities, go on and make wealth! In most cases, however, the answers would be “No.” Most of us do not have time to learn all these aspects of investment. Even if we do, we may not be able to do it regularly. Mutual funds are well-equipped with fund managers to do all the above activities.
Let us just concentrate on our jobs and leave our wealth management to the pros.

“Is there any rule in banking that allows them to refuse to sanction personal loans or credit cards to a relative of a lawyer or policeman whether the person is self-employed or salaried?”

“I work with an NGO, but I am finding it difficult to get a loan.”

These are some of the common queries that I come across when I talk to people.

Or, when a friend of mine approached for a loan and said that he was working with an ad agency, the bank agent politely declined the application saying “Sir, we do not offer services in your area”. So, the friend asked which areas had the service. The agent just walked away!

Though we are not aware of any such specific practices, banks may not be keen on lending loans to specific categories of lenders.

But, hearsay doesn’t really convince one of the issues that borrower community may face. A friend, Ms. Bhateja employed with a private limited company approached a private bank for a car loan. She was employed with a dotcom company and had a good pay package. Ideally, she should not have faced problems getting the loan.

Well, she could just get about 50 per cent of the cost of the car as a loan. And, being unmarried, she could not get a loan without a guarantor.

Bhateja’s mother, a teacher employed with a listed school applied for the same loan on her daughter’s behalf. She got the loan within 15 days - without a guarantor. She also got 75 per cent of the cost of the vehicle as a loan and for tenure as short as 12 months.

Well, while the borrower community may not like the idea of ‘preferred borrowers,’ it is very much there.

People working with dotcoms, private companies, or those associated with NGOs may not have a stable source of income. In fact, in a few cases, the income may fluctuate. Banks may also be wary of lending to professional such as lawyers and doctors, especially those with private practices.

By not lending a loan to a ‘weak’ borrower, the bank is saving its interests; as well as the borrower’s. Private practices can be monetarily lucrative, but whether the pattern can be sustained or not is not a risk the lender is willing to take. Keeping this in mind, the lender may offer a reduced loan amount or tenure. A loan default can spoil your creditworthiness. Worst, it can bring you face-to-face to a recovery agent.

There can also be an issue with designations. Once a borrower has given in the application, the verification is out-sourced to some credit-verification agency. More often than not, these individuals are not well-versed or exposed to the new careers, or may find it difficult to understand or converse in English. Say, a designation of Features Writer can be very ambiguous as compared to that of a Journalist.

Ms Bhateja got a call from a bank saying that she could apply for personal loan of a lakh against her credit card. Followed a rapid round and a promise that a guy from the bank would come to pick up the documents.

She got a call in the morning, “Madam, apaka designation clear nahin hai. Journalist log ko loan mein thoda problem ho sakta hai.”

No clear answers. All vague.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/ICICI_Lombard_to_expand_Nirmaya_scheme/articleshow/3468650.cms

Nirmaya, the new health insurance plans for the mentally disabled launched by ICICI Lombard, sounds like very unique product. This scheme will not need a medical test for anyone who is looking to buy the policy. The annual premium charged is also quite low which covers routine medical check up, therapy to corrective surgery, and transportation.

The policy is specially designed for the welfare of people suffering from autism, mental retardation, cerebral palsy, as well as multiple disabilities. Family members of the mentally disabled person can reduce their financial load by buying such policies.
In all the policy looks very good and may be a major hit among people who are looking out for these kinds of policies for any of their family members or friends. Many NGOs will also make use of this policy for people who are mentally disabled. It is a great step taken by ICICI Lombard to benefit a part of society that is criminally overlooked when it comes to such matters.

Death is the reality of Life, it’s the only thing which is certain in life and guaranteed to happen at some stage. Imagine the demise of a breadwinner; it’s the most insurmountable of events and can leave a huge burden of debt behind. Ever wondered the expenditure incurred on one’s funeral? India being a secular land, has people of various religions and beliefs. Different religions follow different funeral customs. Some bury, some burn the body into ashes. However, it doesn’t end there.

The expenditure starts from arranging for a casket to the funeral luncheon; calling a pandit who reads ‘Garud Puran’ for one’s ‘Moksha’ to the condolence meeting to offering money and gifts to the pandit for his services to arranging stay for the relatives; from arranging a vehicle to carry the casket to flowers to the plot to digging and filling the grave…

Ever wondered how much all this can cost?

Make hay while the sun shines, it is rightly said; why wait for an unforeseen event to hit you hard? Rather, be prepared.

Funeral expenses can range anywhere between Rs.50,000 to Rs.5,00,000 in India. For some it’s as high as the expense on a wedding. Thus the sudden demise of our loved ones may leave us bankrupt or may put us under heavy burden.

Funeral preplanning is a highly personal decision, so there’s no typical insurance plan. Unlike some other types of insurance, this is less a “what if” financial strategy and more a question of “when.”

Abroad, there are insurance companies who offer funeral expenses under a protection plan. There are a few companies as well who covers funeral expenses stand-alone. With this coverage, you can plan many details of your funeral, you can list the things you want to happen and be included as a part of funeral function including the products and services that it will entail, and pay for them in advance.

We in India do not have any funeral insurance or any companies covering funeral expenses. However this can still be covered under an insurance policy. When you buy a life insurance policy make sure you add funeral expenditure to it so that when a claim is made on death it’s accounted for.

If you think a sum assured of 20 lakhs is enough for your life insurance in the current scenario, add an appropriate amount which you think would be needed to cover your funeral expenses.

That is, f you think an amount of 5 lakh will be enough to cover your funeral expenses, you should take a sum assured of 25 lakh not 20 lakh. In this way you cover your life, and funeral expenses are reimbursed.

“An EMI credit card? Wow! I use the credit card but I pay it off via EMIs. This has to be the best scenario ever!”

* * * *

Two months later: “I was given an ICICI EMI card with the promise that Rs. 2000 will be automatically deducted from my bank account every month. Firstly, this never happened, including no statement. And secondly, I was slapped with a Rs. 600 penalty on a total expense of Rs. 5500 on my credit card. On calling the helpline, the “service officer” told me to pay Rs. 4000 cash; and the Rs. 600 debit would be adjusted. Which means I would have already paid Rs. 6100….”

Aah! What’s the use?

* * * *

People, please! DO NOT take verbal promises from telemarketers as gospel, please, please, please!!!! You have no way of proving anything. The best solution for the above mentioned sad experience would be to settle all outstanding dues immediately so that it doesn’t affect your credit rating. And, anything such as this occurs in the future, make sure to send in a complaint in writing and get an acknowledgement. In addition, enter a complaint on the bank’s website. The point here is to ensure that you do everything as per procedure, especially complaints. This will ensure the bank cannot accuse you of not following procedure as an excuse for not rectifying your issue/complaint.

I took a loan of Rs.10 lakh from Kotak Mahindra Bank at a floating rate of interest (7.5%). An agreement clause says that we cannot pay more than 25% once a year without a penalty of 2%. Every alternate quarter, they increase their rates of interest (currently, 10.25%). For a new home loan the rate of interest is 9.5% (floating). We have paid Rs.3.8 lacs without penalty, along with a monthly installment of Rs.17, 291 (principal+interest) without default, through post dated cheques. We want to pay the remaining balance (approximately, Rs.4 lakh) due to the high rates of interest. They insist on penalty, so we requested them to reduce the interest or let us pay off the remaining amount without penalty. Can we take the matter to some consumer court?