It's time to manage your debts better

There might be phases in your life when you pile up with immense debts. Then you seek professional help to resolve the problem. You should learn how to manage your debts more efficiently and be within your budget accordingly. If you are not sure how to manage it properly and systematically, then comes the requirement of an expert counselor. They would suggest when you have missed the payments or you are giving bankruptcy a thought. Looking into your case minutely, these people may even give you view for unforeseen future hardships.

They actually then start negotiating with the creditors within their reach and help you for personal budgeting. You can be able to control your debt well enough and have a better grip over it this way. And there is another process of bringing the interest down charged by the creditors. This also is handled by these counselors efficiently. Your counselor will fix a repayment plan after examining your debts and send it to the creditors for acceptance. When it is accepted, you can start paying your debt as accordingly in the plan.

Message for Investors

The message for investors is on disciplined approach to investment

► Do not fall prey to short term and cheap ideas which pose a risk to your capital instead

►  Go for planned investment approach with proper risk measurement and planning return on surplus funds – arrive at balanced approach while allocating funds to equity for growth , MF for regular income growth and Insurance for life and health risk

► Impulsive and knee jerk reaction on investing MUST be avoided – maintain discipline in creating wealth to enjoy the life objectives

► Equity offers dynamic returns, should you define your risk taking ability and plan investing after measuring it

► Professional counseling for investment decision making is worth investing – Most investors are seen bargaining price with service providers, instead demand most from them on quality services. Pay price to avail quality service to bring growth in capital and peace of mind to your family.

► Think and plan wealth creation for building future of your family and your next generation

We are living in an era where equity investments could create significant wealth given the favorable tax regime. Hence, concentrate on making sound investments, take informed decisions by referring to quality research and counseling.

To generate greater returns with risk management take professional help and make the best of your finances through a disciplined and long term approach.

Investing Jargon II

Curb Trading

The term refers to the trading that occurs outside of general market regulations, commonly through computers or telephones after the official exchanges have closed.

Circuit Breaker

Circuit breaker refers to any of the measures that are used by stock exchanges during large sell-offs to avert panic selling. It is sometimes called a “collar”.

 GARP Investing

The GARP (Growth at reasonable Price) strategy is a combination of both value and growth investing.

Herd Instinct

A mentality characterized by a lack of individuality, causing people to think and act like the general population. Herding instinct is when you tend to follow the group and react in the same manner as they react.

Speculator

A speculator is a fellow who trades bonds, commodities, derivatives, or equities with a higher risk appetite, in return for a substantial profit potential. Speculators anticipate large price movements in either direction.

Top Line

Towline is the slang which refers sales or revenue.

Window Dressing

Window dressing is the strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. In other words, it refers to showing the better position than the actual.

Investing Jargon

Bottom Line    Bottom line is the slang which is used for net income or profit.      

Bottom Up Investing     An investment approach that de-emphasizes the significance of economic and market cycles. This approach focuses on the analysis of individual stock.        

Bull & Bear    A bull refers to an investor who thinks the market, a specific security, or an industry will rise. While, a bear is an investor who thinks the market, a specific security, or an industry will fall.        

Dividends  Dividends refer to the cash payment from profits of the company that is announced by the Company’s Boards of Directors to be distributed among the stockholders.      

Panic Buying    The term refers to high volume buying brought about by sharp price increases. This happens mainly due to some news which is spread in the market.        

Panic Selling    The term refers to high volume selling brought about by sharp price decline. It happens when the market collides.

Tax planning and Conclusion to Mr. Smith Case

In order to plan for his taxes it is important that Mr. Smith should be aware of the tax implications of the various investment avenues. Before discussing the tax implications, itt is important to understand the all pervading standard section of the income tax act, which provides a deduction under that section, upto Rs. 1,00,000/-. The earlier rebate under section 88 has been replaced with section 80C. Mr. Smith should understand the following aspects while planning for his taxes:

►  Tuition fees paid for his child is eligible for a deduction under section 80C

►  Premium paid on insurance policies

►  Contribution towards national savings certificate and public provident funds are also eligible for a deduction

Conclusion

Normally any personal financial planning is a highly comprehensive exercise involving close interaction with the clients. It covers a number of dimensions and involves studying the needs and requirements of the client closely. This case just touched the tip of the ice berg and aimed at bringing light on the basic elements of financial planning when planning for the children’s expenses.

More on investment planning

Now he has a 5 year old child. The insurance policy that he has taken will mature by the time his son is 18 years when bonus will be payable to Mr. Smith. From a standard insurance company, the average yearly bonus payable is Rs.48 per thousand sum assured. Hence, for a sum assured of Rs. 2,00,000/- Mr. Smith can expect a bonus of Rs. 9,600/- per annum which may amount to nearly 2 lakhs. ( However, this bonus is not guaranteed ). This bonus is in addition to the frequent inflows of Rs. 50,000/- (25%) on sum assured that will be paid on the 5th, 10th and 15th policy year.

In order to generate a substantial corpus for his son, Mr. Smith should invest the regular inflows from the insurance plan in an equity diversified scheme. The investment can be made either as a lump sum or through the systematic investment plan route. The investment can also be made in child funds.

Investments planning for Mr. Smith

His residential house and jewellery will not be considered as investment because they will not generate income. He needs to invest further to achieve a corpus of nearly 45 lakhs. His present savings are nearly rupees two lakh per annum and he is left with a cash of one lakh after meeting all the cash outflows. In totality, his present savings per annum are three lakhs. He will have additional savings that will become handy after the car loan is repaid (after two years). His savings will increase to Rs. 6 lakhs per annum after the repayment of loan. His housing loan will be met out of his income while he is earning as it matures at the end of nine years.

He can invest in a mix of equity and debt in such a manner that his exposure to equities is between 40% and 50% of the portfolio. He should consider safer avenues such as post office schemes that offer guaranteed returns than other avenues available.

Mr. Smith Case : Debt Front

His current outstanding liabilities amount to nearly Rs. 18,00,000/-. His annual contribution towards these EMIs constitutes nearly 45% of his monthly income.

This means that almost half of his monthly income is consumed in meeting these loan EMIs. One of the options that can be considered is the prepayment of car loan. However, it comes at a cost of penalty and therefore may not prove to be a very feasible preposition. Also, since his car loan will be repayable in the next two years it will reduce such payables and will lead to higher savings (Rs. 3,00,000/-). Once these loans are repaid, the client will be left with sufficient money to be invested.

Mr. Smith requires a corpus of nearly 20 lakhs after 20 years for his son. He also needs to build his retirement corpus or Rs. 30 lakhs in the next 10 year. He is having investments in stocks and shares,  FPF/ PPF and bank FDs worth Rs. 5 lakhs.

Mr. Smith Case : Risk Cover

Insurance needs should be constantly reviewed and monitored from time to time. If this is not done, then the investor falls prey to the risk of under insurance. This is exactly the case with Mr. Smith. He had taken a 25-year money back plan when he was 30 years for Rs, 2,00,000/-.

In addition to the money back plan, it is recommended that Mr. Smith take a term insurance plan. He can take up a cover for Rs, 30,00,000/- for a 20-year period. This amount of Rs. 30,00,000/- will not only help his family in meeting his outstanding liabilities but also in meeting expenses to some extent. The annual premium comes to Rs. 16,346/-. A suitable term plan that can be recommended is the Priceless Being. A term plan becomes important primarily because of the highly leveraged position of Mr. Smith. In case of his unfortunate death, his liabilities should not become a burden for his wife and child. Secondly, this plan can be used as a suitable supplement to the existing insurance cover. Due to its low premiums, such a plan will not cause any additional financial burden for Mr. Smith. He can also invest the proceeds from the money back plan in mutual funds, the returns from mutual fund can be used to pay the premiums for this plan.