WHY WOMAN DON’T ASK FOR THEIR SHARE IN INHERITED PREOPERTY AND WEALTH?

Let’s talk about Women and Inheritance today. Our Indian culture, has for thousands of years treated men as someone who lead families and be the heads of next generation and women as someone who will go to some other family after marriage and start a new life. This has been deeply rooted in all our minds for years and years. This is one big reason why women in India are not aware about inheritance laws and their rights in property.

Some families, where there are sons and daughters both, do not even raise the point of dividing the property equally among all of them equally. Daughters who are married are not even in picture at the times, the wealth is divided and it’s considered  natural and something that makes sense. Women on the other hand also do not take any lead or don’t bother asking for their fair share in the family wealth.

Brothers do not share wealth with Sisters

You must have seen cases like these and might be experiencing them in your family as well.

Case 1 : I know a family which had 1 brother and 3 sisters and who had a huge property in Mumbai at a central location, lots of shares, mutual funds and bank accounts, When the father died, people cried and after a month every body was back at home, all 3 daughters who are married didn’t even think for a second that they have a huge 25% share in the wealth, which is a decent amount by today’s standards. All 3 daughters are not so well off  and struggling day in and day out, but they are just not considering the option to ask for their share. Legally if they want, it would be just a matter of a  few months or years and some bitter experiences, but they might reach their financial freedom if they go to court. But they are too emotional to take that step and worry about relationships and the problems which arise out of it.

Case 2 : In another case, there are 2 brothers and 2 sisters (all married), and after the father’s death, the brothers are fighting with each other for property “Father spend so much on your education, my career was affected because of that, So I should logically get more now.” Fair point logically, but from legal point of view, it does not matter much how father treated whom . The sad part of this story is that brothers are fighting for their share and also sharing their plight with their sisters, but not for a second do they think that even sisters are legal heirs and should also get their share. (Incase you didnt knew – Hindu Succession Law is applied when a WILL is not written)

It’s not Fair!

Just because now they are part of another family, they are not seen as valid heirs. I am raising this point today because this is wrong practice. Women now have to raise their voices and ask for their share from their parents and brothers. If required, ask for it legally. Just because father has spend lot of money on wedding of sister and given her gold does not mean she can be cut off from the family wealth sharing.

If father writes a WILL saying that he wants to give his wealth in some specific proportion, then it’s fine, it’s your father wish. But if a WILL is not present, then you are a valid legal heir, you should ask for your share and you will get it.

Look at it as part of your Financial Plan

If you are a man, your wife might be entitled for her share of wealth from her parents’. In today’s world where money has become so important, see if you can convince her to ask for her share. It might get her valid share of money and can help you in leading a better financial life. I am not saying this because you should be money minded, but because its a fair thing to ask for.

Source : Manish Chauhan - www.jagoinvestor.com

Women and Money- Lets JOIN HANDS to empower and encourage women investors

  Do you know that only 1% of world wealth is owned by women , while women constitute 40% of the global workforce ? – World Bank . This is a little disturbing fact, and question now is, when women are working so much, giving a lot, have equal capability, then why they have so much less owned on their name ? When it comes to the area of money, Men are so much involved in personal finance, but women are not and that creates a big imbalance. Here is a small example to show how women suffers in her financial life because of this imbalance in understanding and knowledge of money

We at jagoinvestor want to start our 2013 with a vision of increasing financial literacy among women in India and we are looking at how we can reach 1 million women and teach them importance of financial literacy in their life. Now how is this related to you ? When we say “women” here, it also includes your wife, sister, mother, daughters and if you want to increase your financial life quality, you need to make sure that they learn about money. 2 years back, when I wrote about women and their personal finance knowledge, it was shocking to learn that 84% of educated, urban women dont have any knowledge or very minimal understanding of personal finance concepts.

Lets see why Women are not interested in personal finance matters

• From decades and generations, it has been dominated by men and only men, women are not even consulted or informed ever
• Women feel that their income is secondary to men, hence whats the use of managing it
• Women are so involved with children, cooking and other household work , that they don’t get time
• Women feel personal finance is complex and do not like numbers

But what happens when Men is not around ?

The best way to make you imagine what happens to women life if she does not have any idea about managing money is to ask you to imagine about your own case, Just imagine in your absence  what is going to be the scene ? You have never encouraged women at your home to learn about money , neither they took any interest, but someday they might have to take charge and that day it will be very frustrating experience for them. We are trying to do some work in the area of financial literacy for Women and once we create something useful for women investors, we would like to share it with you all, so that women at your home can use it and take the first step towards financial literacy, but we need some help from you on this.

We have created a small survey which needs inputs by women, we want to know what they feel about this subject, how much ready are they and what is stopping them to learn about money. If you are a women reader of this blog, please fill up the survey. However if you are a male reader, we need your support, please ask your wife, mother, sister and daughter to take up the survey and spend 5 min on this, tell them they have to do it for you and their future. Just carry your laptop to them and insist them to spend 5 minutes and complete the survey. And if they complete take them out for dinner on our behalf (Bill paid by you of course) … Following is the survey questions

Source : Manish Chauhan - www.jagoinvestor.com

Women and Money- Lets JOIN HANDS to empower and encourage women investors

  Do you know that only 1% of world wealth is owned by women , while women constitute 40% of the global workforce ? – World Bank . This is a little disturbing fact, and question now is, when women are working so much, giving a lot, have equal capability, then why they have so much less owned on their name ? When it comes to the area of money, Men are so much involved in personal finance, but women are not and that creates a big imbalance. Here is a small example to show how women suffers in her financial life because of this imbalance in understanding and knowledge of money

We at jagoinvestor want to start our 2013 with a vision of increasing financial literacy among women in India and we are looking at how we can reach 1 million women and teach them importance of financial literacy in their life. Now how is this related to you ? When we say “women” here, it also includes your wife, sister, mother, daughters and if you want to increase your financial life quality, you need to make sure that they learn about money. 2 years back, when I wrote about women and their personal finance knowledge, it was shocking to learn that 84% of educated, urban women dont have any knowledge or very minimal understanding of personal finance concepts.

Lets see why Women are not interested in personal finance matters

• From decades and generations, it has been dominated by men and only men, women are not even consulted or informed ever
• Women feel that their income is secondary to men, hence whats the use of managing it
• Women are so involved with children, cooking and other household work , that they don’t get time
• Women feel personal finance is complex and do not like numbers

But what happens when Men is not around ?

The best way to make you imagine what happens to women life if she does not have any idea about managing money is to ask you to imagine about your own case, Just imagine in your absence  what is going to be the scene ? You have never encouraged women at your home to learn about money , neither they took any interest, but someday they might have to take charge and that day it will be very frustrating experience for them. We are trying to do some work in the area of financial literacy for Women and once we create something useful for women investors, we would like to share it with you all, so that women at your home can use it and take the first step towards financial literacy, but we need some help from you on this.

We have created a small survey which needs inputs by women, we want to know what they feel about this subject, how much ready are they and what is stopping them to learn about money. If you are a women reader of this blog, please fill up the survey. However if you are a male reader, we need your support, please ask your wife, mother, sister and daughter to take up the survey and spend 5 min on this, tell them they have to do it for you and their future. Just carry your laptop to them and insist them to spend 5 minutes and complete the survey. And if they complete take them out for dinner on our behalf (Bill paid by you of course) … Following is the survey questions

Source : Manish Chauhan - www.jagoinvestor.com

Women and Money- Lets JOIN HANDS to empower and encourage women investors

  Do you know that only 1% of world wealth is owned by women , while women constitute 40% of the global workforce ? – World Bank . This is a little disturbing fact, and question now is, when women are working so much, giving a lot, have equal capability, then why they have so much less owned on their name ? When it comes to the area of money, Men are so much involved in personal finance, but women are not and that creates a big imbalance. Here is a small example to show how women suffers in her financial life because of this imbalance in understanding and knowledge of money

We at jagoinvestor want to start our 2013 with a vision of increasing financial literacy among women in India and we are looking at how we can reach 1 million women and teach them importance of financial literacy in their life. Now how is this related to you ? When we say “women” here, it also includes your wife, sister, mother, daughters and if you want to increase your financial life quality, you need to make sure that they learn about money. 2 years back, when I wrote about women and their personal finance knowledge, it was shocking to learn that 84% of educated, urban women dont have any knowledge or very minimal understanding of personal finance concepts.

Lets see why Women are not interested in personal finance matters

• From decades and generations, it has been dominated by men and only men, women are not even consulted or informed ever
• Women feel that their income is secondary to men, hence whats the use of managing it
• Women are so involved with children, cooking and other household work , that they don’t get time
• Women feel personal finance is complex and do not like numbers

But what happens when Men is not around ?

The best way to make you imagine what happens to women life if she does not have any idea about managing money is to ask you to imagine about your own case, Just imagine in your absence  what is going to be the scene ? You have never encouraged women at your home to learn about money , neither they took any interest, but someday they might have to take charge and that day it will be very frustrating experience for them. We are trying to do some work in the area of financial literacy for Women and once we create something useful for women investors, we would like to share it with you all, so that women at your home can use it and take the first step towards financial literacy, but we need some help from you on this.

We have created a small survey which needs inputs by women, we want to know what they feel about this subject, how much ready are they and what is stopping them to learn about money. If you are a women reader of this blog, please fill up the survey. However if you are a male reader, we need your support, please ask your wife, mother, sister and daughter to take up the survey and spend 5 min on this, tell them they have to do it for you and their future. Just carry your laptop to them and insist them to spend 5 minutes and complete the survey. And if they complete take them out for dinner on our behalf (Bill paid by you of course) … Following is the survey questions

Source : Manish Chauhan - www.jagoinvestor.com

NOW PAY A LOWER CAR INSURANCE PREMIUM IF YOU ARE MARRIED

Factors like profession, gender and marital status, among many others, are now being used by insurers to determine the premium. Preeti Kulkarni shows how you can bring down your auto insurance premiums

    Are you a doctor? Do you have a covered parking lot? Do you use your car sparingly? If your answers to these questions are yes, you may get a discount on the insurance premium on your car at the time of renewal. Faced with huge losses in their motor portfolio, general insurers are exploring various options to reduce the losses. Differential pricing is one of the options considered, which means premiums will go up if the insurer believes the incidence of claim is going to be higher or vice versa.

“Traditionally, car premiums were decided upon the basic factors i.e. engine capacity, age of the car and geographical zones. Over the last four years, insurers in India have started using several other ‘asset-based’ parameters – such as the type of fuel used in the car, effective anti-theft devices etc. Further, few insurers now are trying with ‘demographic’ parameters as well – these include the occupation of the insured, the age of the driver/insured etc.,” says Sanjay Datta, chief, underwriting & claims, ICICI Lombard.
In fact, industry-watchers say your marital status and gender, too, could affect the premium figures. “In terms of demographic parameters, we have started taking into account the insured’s age, gender, occupation and driving experience. Even marital status plays a role in influencing the premiums. For instance, married individuals in the age group of 32-60 are entitled to discounts as they are perceived to be more responsible drivers and we are thinking of using this as a rating parameter. They can also be counted upon to take good care of their vehicles. Discounts on the basis of such personal information can go up to 20%. Likewise, the loading on premium, too, can be as high as 20%,” says Madhukar Sinha, national head, personal lines, Tata-AIG General.
However, the possibility of discount in one category being cancelled out due to loading in another cannot be ruled out. For instance, higher premium due to the fuel type may nullify the discount earned on account of occupation or age.

PROVIDE MORE INFORMATION IN
THE PROPOSAL FORM
Simply put, the information you provide can swing the premium for you. For instance, Berkshire Insurance, which sells Bajaj Allianz’s motor policies, offers a 5% discount to policyholders if they share personal information.

“We have started offering discounts in premiums to certain professions (like doctors, software professionals, those with desk jobs) and also on the basis of income brackets and gender. The discounts will be in the range of 5-7% on policies bought online,” says Vijay Kumar, head, motor insurance at Bajaj Allianz.
You are also likely to score high on insurers’ preference meter if you sparingly use your vehicle, as that would translate into fewer chances of making claims. This apart, you could be charged lower premiums if you park the car in a covered space. Again, the reason is lower possibility of claims. On the other hand, a car parked in the open is always at the risk of getting damaged.

BUY POLICIES ONLINE
If you are buying your policies through an intermediary, it is unlikely that s/he will encourage you to provide such details in the proposal form. Besides, going online has direct benefits, too. “One can save money on car insurance premiums by buying the insurance policy online. Some companies offer better rates for customers coming directly onto the company’s website,” says Datta.

PROTECT YOUR NO-CLAIM BONUS
Policyholders who have not made any claims in the previous year receive rewards in the form of noclaim bonus (NCB). On renewal, the cover could increase by up to 50%. Therefore, you need to make efforts to ‘earn’ this NCB. At a broader level, you can do so by following driving rules and taking adequate care of your car. Moreover, you can also retain the NCB by forgoing smaller claims.

“If the claim amount is not significant, it is better not to make a claim. You should look at getting the vehicle repaired at a garage that charges reasonable rates. You can negotiate hard to bring down the costs. If you avoid smaller claims, you stand to gain 20% in the first year and up to 50% in the subsequent years as NCB,” says Kumar. Simply put, if the amount is lower than the NCB you are likely to accumulate, you’d be better off forgoing the claim. Also, remember, since the NCB is linked not to the vehicle or the policy but to the policyholder, it will be transferred to your new car, too.

“You should ensure that when you sell your old car and buy a new car in the same segment, you can claim NCB on the premium for the new car also. The savings in such a scenario can be significant as the premium for a new car is always high.”

ASK FOR HIGHER DEDUCTIBLES
If you are confident of your driving abilities or are unlikely to use your car extensively during the year, you can explore this option. Here, the customer agrees to bear a part of the expenses before the company steps in to foot the rest of the bill.
“If the customer is confident of his/her driving skills and feels that s/he is not going to make a claim during the year, this is a good option. The deductible ranges from . 2,500 to . 7,500 and the savings in premium can be as high as 30%,” says Kumar.

CHOOSE YOUR FUEL TYPE WISELY
While diesel cars have gained popularity due to lower cost of the fuel, the effect on premiums is just the opposite. Petrol cars attract lower premiums compared to diesel or CNG-run vehicles. Therefore, you need to bear this point in mind while deciding on the right vehicle.

INSTALL ANTI-THEFT DEVICES
“Further discounts can be availed by installing Automobile Research Association of India (ARAI) approved anti-theft devices in your car. This is another form of reward to the owner of the car for showing responsibility by installing such a device,” says Datta. It is estimated that installation of such devices have brought down claims by up to 80%.

“At the time of buying a car, ensure that it is fitted with a manufacturer-fitted anti-theft device. Devices procured later may not help much as the insurer will have to assess whether it is certified, which could result in hassles during policy issuance,” adds Kumar. 

 

Source : The Economic Times – 16-Jan-2013

NOW PAY A LOWER CAR INSURANCE PREMIUM IF YOU ARE MARRIED

 Factors like profession, gender and marital status, among many others, are now being used by insurers to determine the premium. Preeti Kulkarni shows how you can bring down your auto insurance premiums

    Are you a doctor? Do you have a covered parking lot? Do you use your car sparingly? If your answers to these questions are yes, you may get a discount on the insurance premium on your car at the time of renewal. Faced with huge losses in their motor portfolio, general insurers are exploring various options to reduce the losses. Differential pricing is one of the options considered, which means premiums will go up if the insurer believes the incidence of claim is going to be higher or vice versa.

“Traditionally, car premiums were decided upon the basic factors i.e. engine capacity, age of the car and geographical zones. Over the last four years, insurers in India have started using several other ‘asset-based’ parameters – such as the type of fuel used in the car, effective anti-theft devices etc. Further, few insurers now are trying with ‘demographic’ parameters as well – these include the occupation of the insured, the age of the driver/insured etc.,” says Sanjay Datta, chief, underwriting & claims, ICICI Lombard.
In fact, industry-watchers say your marital status and gender, too, could affect the premium figures. “In terms of demographic parameters, we have started taking into account the insured’s age, gender, occupation and driving experience. Even marital status plays a role in influencing the premiums. For instance, married individuals in the age group of 32-60 are entitled to discounts as they are perceived to be more responsible drivers and we are thinking of using this as a rating parameter. They can also be counted upon to take good care of their vehicles. Discounts on the basis of such personal information can go up to 20%. Likewise, the loading on premium, too, can be as high as 20%,” says Madhukar Sinha, national head, personal lines, Tata-AIG General.
However, the possibility of discount in one category being cancelled out due to loading in another cannot be ruled out. For instance, higher premium due to the fuel type may nullify the discount earned on account of occupation or age.

PROVIDE MORE INFORMATION IN
THE PROPOSAL FORM
Simply put, the information you provide can swing the premium for you. For instance, Berkshire Insurance, which sells Bajaj Allianz’s motor policies, offers a 5% discount to policyholders if they share personal information.

“We have started offering discounts in premiums to certain professions (like doctors, software professionals, those with desk jobs) and also on the basis of income brackets and gender. The discounts will be in the range of 5-7% on policies bought online,” says Vijay Kumar, head, motor insurance at Bajaj Allianz.
You are also likely to score high on insurers’ preference meter if you sparingly use your vehicle, as that would translate into fewer chances of making claims. This apart, you could be charged lower premiums if you park the car in a covered space. Again, the reason is lower possibility of claims. On the other hand, a car parked in the open is always at the risk of getting damaged.

BUY POLICIES ONLINE
If you are buying your policies through an intermediary, it is unlikely that s/he will encourage you to provide such details in the proposal form. Besides, going online has direct benefits, too. “One can save money on car insurance premiums by buying the insurance policy online. Some companies offer better rates for customers coming directly onto the company’s website,” says Datta.

PROTECT YOUR NO-CLAIM BONUS
Policyholders who have not made any claims in the previous year receive rewards in the form of noclaim bonus (NCB). On renewal, the cover could increase by up to 50%. Therefore, you need to make efforts to ‘earn’ this NCB. At a broader level, you can do so by following driving rules and taking adequate care of your car. Moreover, you can also retain the NCB by forgoing smaller claims.

“If the claim amount is not significant, it is better not to make a claim. You should look at getting the vehicle repaired at a garage that charges reasonable rates. You can negotiate hard to bring down the costs. If you avoid smaller claims, you stand to gain 20% in the first year and up to 50% in the subsequent years as NCB,” says Kumar. Simply put, if the amount is lower than the NCB you are likely to accumulate, you’d be better off forgoing the claim. Also, remember, since the NCB is linked not to the vehicle or the policy but to the policyholder, it will be transferred to your new car, too.

“You should ensure that when you sell your old car and buy a new car in the same segment, you can claim NCB on the premium for the new car also. The savings in such a scenario can be significant as the premium for a new car is always high.”

ASK FOR HIGHER DEDUCTIBLES
If you are confident of your driving abilities or are unlikely to use your car extensively during the year, you can explore this option. Here, the customer agrees to bear a part of the expenses before the company steps in to foot the rest of the bill.
“If the customer is confident of his/her driving skills and feels that s/he is not going to make a claim during the year, this is a good option. The deductible ranges from . 2,500 to . 7,500 and the savings in premium can be as high as 30%,” says Kumar.

CHOOSE YOUR FUEL TYPE WISELY
While diesel cars have gained popularity due to lower cost of the fuel, the effect on premiums is just the opposite. Petrol cars attract lower premiums compared to diesel or CNG-run vehicles. Therefore, you need to bear this point in mind while deciding on the right vehicle.

INSTALL ANTI-THEFT DEVICES
“Further discounts can be availed by installing Automobile Research Association of India (ARAI) approved anti-theft devices in your car. This is another form of reward to the owner of the car for showing responsibility by installing such a device,” says Datta. It is estimated that installation of such devices have brought down claims by up to 80%.

“At the time of buying a car, ensure that it is fitted with a manufacturer-fitted anti-theft device. Devices procured later may not help much as the insurer will have to assess whether it is certified, which could result in hassles during policy issuance,” adds Kumar. 

Source : The Economic Times – 16-Jan-2013

Earning Less Than 10L? Use Rajiv Gandhi Scheme to Save More Tax

Rajiv Gandhi Equity Scheme offers tax benefits over & above the . 1 lakh under Sec 80C, investors with an appetite for equities can invest in this scheme , says Prashant Mahesh

    Some investors are taking a close look at the Rajiv Gandhi Equity Savings Scheme (RGESS) this tax-saving season. Taxpayers with gross annual income of . 10 lakh or less can invest up to . 50,000 under Section 80CCG in the scheme. The benefit is available to first-time investors for investments through their demat accounts opened on or after November 23, 2012, or demat accounts which have not yet been used for equity investments. 

RGESS offers tax benefits over and above that one gets under Section 80C of the I-T Act which is available for savings or investments up to . 1 lakh. “Since this scheme gives you an added tax benefit, investors with an appetite for equities and keen to build an equity portfolio for the long-term can invest in this scheme,” says Vishal Dhawan, chief financial planner at Plan Ahead Wealth Advisors. 

As per the provisions of the scheme, you can invest in direct equities (any stock belonging to BSE 100 or NSE CNX 100, equity shares of Maharatnas or Navratnas) or you can buy units of exchange traded funds (ETFs) investing in RGESS-eligible shares provided these units are listed and traded on stock exchanges and settled through the depository mechanism. 

“Investments in individual stocks carry higher risk as compared to investments in equity mutual funds. We recommend first-time investors to invest through the mutual fund route,” says Aseem Dhru, MD & CEO, HDFC Securities. 

PREFER MUTUAL FUNDS TO DIRECT EQUITIES 

Many investment advisors have reservations about individuals investing directly in stocks under RGESS. “It is very difficult for the retail investors to predict individual stock price and how they will behave,” says S Shankar, chief financial planner at Credo Capital. Take the example of a couple of Nifty stocks. In 2012, IDFC gained 87% while BPCL lost 25%. So if you buy a wrong stock, you could end up losing a lot of money. As compared to this, a mutual fund invests in a basket of stocks thereby lowering the risk.
“Equity mutual funds offer the benefits of diversification which helps lower risk and optimise return,” says S Shankar. He advises investors to invest in RGESS by using the ETF route. 

THE TAX BENEFITS 

As per RGESS, if you invest . 50,000, you shall get a 50% deduction of . 25,000 under this scheme. Now if your income is taxed at 10%, you save tax of . 2,500; if you are in the 20% tax bracket, you will save . 5,000. In case you were to buy stocks under this scheme, keep in mind the brokerage costs that you may have to shell out in addition to the annual depository maintenance costs. For example, if you buy shares worth . 50,000, you shall pay a brokerage of . 250 and an STT (Securities Transaction Tax) of another 0.1%, or . 50. Keep these costs in mind before investing. As of now, if you happen to miss this scheme, there is no clarity as to whether this scheme will be extended to the next financial year. 

THE PROCESS 

All those looking to invest in RGESS, need to open a demat account with a depository participant and a broking account with a recognised member of a stock exchange. The depository will certify your ‘new investor’ status at the time of designating your account as a demat RGESS account. Once this is done you can buy stocks from BSE 100, NSE CNX 100, Maharatnas or Navratnas or exchange traded funds (ETFs) as specified under the scheme. An investor can invest in RGESS securities/ ETFs as many times as he wants in the first year of investment. 

However, tax benefits are allowed only in the first year of RGESS investment. Even if one claims a small amount in deduction in first year, no deductions can be claimed in subsequent years. 

The investment made under RGESS is locked in for a total period of three years. However, as per the terms of the scheme, only the first year is a fixed lock-in. In the subsequent two years, the investment is subject to a flexible lock-in. During this flexible lock-in period, the investor has a freedom to book profit or alter the securities in her/his portfolio provided the value of the securities in the demat account is maintained or is equal to the amount declared as investment under RGESS in the first year. You will lose tax benefits availed under Section 80CCG of the I-T Act if you fail to comply with the lock-in requirements. 

Source : The Economic Times – 21-Jan-2013

 

Proposed PF rule may cut your take-home salary

To avoid raising the wage bill, employers may rejig the pay structure to retain the cost to company.

    The recent EPFO circular, stating that certain allowances must also be added to the salary while computing the PF contribution, could upset millions of household budgets if it were to be enforced. On the face of it, this looks good for employees because a higher amount will flow into their PF accounts every month. However, the employers, who are supposed to match the contribution, may not want to absorb the rise in the wage bill. They are likely to rejig the compensation structure to ensure that the cost to company doesn’t go up. ET Wealthestimates that the average salaried person could see his take-home pay dip by 6-8% if the revised interpretation of rules is implemented (see graphic). 

    Currently, 12% of an employee’s basic salary is deducted from his income and put in the EPF by his employer. The company also contributes a matching sum on behalf of the employee. However, last year, the Madras high court and the Madhya Pradesh high court held that the various allowances paid to employees should also be considered while computing the PF contribution. Last month, the EPFO issued a circular, stating that the base figure for calculating the PF contribution must include many of the allowances given to the employee. 

 
Higher savings for retirement The change is welcome if one considers retirement planning. The latest demographic data shows that though Indians are living longer, their sunset years are not very comfortable due to poor health. The problem worsens if the retiree runs out of money in his twilight years. It prevents him from availing of healthcare facilities that could improve the quality of his life. For a comfortable retirement, you need to save more and the new EPF rule enforces higher savings. As our calculation shows, the average employee would be putting away 50% more into his retirement savings if the rule comes into force. With employers making a matching contribution, the EPF may well become the most important retirement planning tool for the salaried class.
    However, the households that are paying huge loan EMIs and have other financial commitments, such as SIPs and insurance premiums, could feel the pinch. The worst hit would be individuals whose current expenses are so high that saving for retirement, however important, will just not be possible. 

    It is still early to say how the change will pan out. For, despite the clarification, there is a lot of ambiguity about the allowances that should be included in wages while computing the PF. As accounting firm PricewaterhouseCoopers notes, “There are conflicting judgements by high courts on the 

    interpretation of the term ‘basic wages’ provided in the EPF Act.” According to the EPF rules, ‘basic wages’ means all emoluments paid to the employee, excluding house rent allowance, dearness allowance,
    cash value of any food concession, 

    overtime allowance, bonus and
    commission. This means only a few allowances, such as special allowance and transport allowance, would be included in the calculation, besides the basic salary.
    Besides, the issue is now before the Supreme Court. “The decision of the Supreme Court will provide a direction in the matter. Till then, this circular is a wake-up call for employers to review their position in relation to their compensation structure,” says PricewaterhouseCoopers. 

What you should do While your company readies its strategy to deal with the new definition, you must also formulate a plan of action. The change will definitely bring down your take-home salary by a few percentage points.
    Calculate the total amount you are putting away in various investments for retirement. This should ideally be 10-15% of your income (see page 18). If your PF contribution under the new rule pushes this beyond the ideal level, you can reduce the quantum of investment in some other option. However, we don’t recommend this unless you are facing a real cash crunch. 

Article Source - ET Wealth - 17/12/2012

 

2012 OFFERS A LESSON FOR EVERY INVESTOR

  A year ago, experts said shun equities, but market surprised them with 20% gains. Bottomline: Don’t time markets, writes Madhu T 

 

 December 2011. A seasoned financial planner in Mumbai was impressed with his new client — a middle-level executive in an MNC. He was impressed with this woman on two counts. One, unlike many clients, she didn’t take forever to get back with details and filling the required forms. Two, she seemed to clearly understand what he was talking about. However, the planner doesn’t hold his client in high esteem anymore. “She called me last week and told me that she had not invested in equity last year as per our plan because she was convinced the market won’t deliver any returns in 2012. She said she has diligently followed market experts’ advice and was sure investing in equity would be a waste,” says the planner. “She decided to give stocks a miss in 2012 and invested all her money in various debt instruments. Now, she is interested in investing in stocks because the market has moved up so much this year. She wanted to know whether she can expect the same kind of returns in the coming year. Clearly, she hasn’t learnt her lesson from the previous year,” says the planner, a bit disappointed.
A PLEASANT SURPRISE 

So, what was the lesson the previous year offered to stock market investors? Don’t try to time the market. Last year, around this time, nobody had anything nice to say about the market. There were huge problems in the domestic and overseas economy and the government seemed least interested in coming up with any creative solutions. It’s the end of the India story, everyone chorused. And, yes, the market “surprised” them all. The BSE Sensex has gained 21% in the past year. “It is the usual story,” says Mukesh Dedhia, director, Ghalla & Bhansali Securities. “Everybody is either right or wrong. That is the practice in this business — nobody wants to stick his neck out. Every forecast is always in line with the general consensus. If you are proven wrong, like this year, you are in great company because almost everyone was wrong,” he says. “I tell my clients I am not an expert of the market. If you ask me where the Sensex will be in the next six months, I don’t know the answer,” says Suresh Sadagopan, principal planner, Ladder7 Financial Advisories. “I tell them that what we are trying to do is to identify various goals and find suitable investment vehicles to reach them. Sure, some of these investments won’t deliver the goods in a particular year or two, but that is part of the game. All markets won’t perform equally well all the time.” 

 
A PLAN FOR EVERYONE
Are you wondering why such obvious lesson is lost on so many smart people? “We Indians don’t have a strategy. We still haven’t learnt the art of dealing with greed and fear factors while investing, especially in stocks. All the lessons and conviction are lost whenever the market gets into a bull or bear phase,” says Dedhia. “That is why we have so many people getting into the market when it is nearing its peak. They will then complain that they have been short changed,” he says. Sadagopan says the habit of chasing “spectacular” returns is the main reason for such setbacks. “For example, I have seen that many extremely intelligent people have committed the mistake of staying away from the market last year when it was down and attractively valued. They were busy chasing gold and real estate or some such theme for spectacular returns,” he says. “Looking back, some of them feel that it hasn’t played out the way they had expected. Now, they are contemplating getting back to the market when the market has already moved up by more than 20%,” he says. 

Advisors like them would want investors to keep it simple to make money from the market. There is no secret formula for getting rich quick. All you need to do is follow the basic rules of the game, they say. If you are a salaried person looking to deploy money for long-term goals, all you need to do is to pick a diversified equity mutual fund scheme or two with a performance record of 10 years. If you want to diversify even within equity, you can go for a mix of large, small and mid-cap funds. Large-cap schemes should be the core of the portfolio, with small exposure to small and mid-cap schemes, which are riskier and have the potential to offer slightly superior returns in the long term. Review the performance of the schemes in six months and if you find them lagging consistently, find out the reasons for the lacklusture performance. If you think the schemes have lost steam, switch to another similar scheme with an equally long record. “All you have to do is to remember that you are in stocks to earn a little extra return, not spectacular return every year. Tax-free double digit returns. That’s all,” says Sadagopan. 

Source - The Economic Times - 17/12/2012

 

EXPERT TAKE

It’s Not the Returns, How Much You Save Matters Most for Your Sunset Years 

 

  Whether it’s a retirement planning system or your personal nest egg, saving a lot and saving early is crucial. Recently, I came across a study that tried to figure out what factors were the most influential in ensuring that a long-term, retirementoriented savings plan had the best outcome for the participants. The study itself and its conclusion were interesting and have some bearing on retirement savings in India, and even on how individuals plan their long-term savings. The study was conducted by Putnam Research Institute, the research wing of an American mutual fund. 

 

  The study looked at a typical American retirement plan — the so-called 401(k) — and simulated the effect of various factors that would normally affect the eventual size of the retirement kitty the participants ended up with. The study, with a hypothetical base case in 1982, consisted of a set of mutual funds that were in the fourth quartile (bottom 25%) over the previous three years.

In other words, the base case was a fairly poor choice, the kind that an investor acting carelessly might actually make. In the base case, that’s all the investor did. He chose these funds and kept investing in them over the next 30 years. The study simulated a realistic increase in income over these years and an investment of 3% of that income into the plan.

Then, the study picked various scenarios that tested four changing factors that can make a difference to the returns and final outcome. Three of these are what you would expect — fund selection, asset allocation, and asset rebalancing. The fourth is what they call deferral rates, which is a way of saying how much income the participants were putting into their 401(k) plans.

As part of the fund selection driver, the study mostly simulated different methods of choosing the best funds based on past performance. Also, just for comparison, it tried out what it calls the ‘crystal ball’ method of fund selection whereby it assumed that those choosing the funds could see into the future.

The outcome was interesting. By far the biggest impact was that of the deferral rate — the amount that was saved. The best impact from other methods was a 15% increase in the size of the retirement nest egg over that of the base case. It should be clear that this modest increase is easily exceeded by the 33% increase that would result if the deduction from income were to be increased from 3% to 4%.

At one level, this is obvious — larger inputs will lead to larger outputs. With this sort of an investment pattern, it will result in a larger output in exactly the same proportion as the inputs. The surprise is that the other methods of enhancing returns yielded so little over a long period. However, that’s not the point.

This seemingly obvious nature of the conclusion hides a more interesting lesson, which is this: whether it’s the design of a retirement pension system like the NPS, or whether it’s your own personal retirement kitty, the best impact on the final outcome comes from expending effort on participation. The higher the participation and the earlier it starts, the more the eventual benefit will be. This is interesting in the context of the NPS. The NPS is widely praised as a very well-designed system with an excellent strategy for arriving upon the right investment strategy as well as involves very low cost. However, the system has very low participation levels, certainly much lower than desired. In effect, in terms of the final outcome, the entire budget of effort has been expended on optimising the inputs that matter less and none on the input that matters most. If something else has to be compromised a bit to get more people into the NPS, then that would have been better.

Similar is the case with personal savings for many of us. Perhaps we obsess a little too much about which funds to choose and how to fine-tune our portfolio in which we invest our savings. It would be better to put that same effort into seeing how the quantum of those savings can be enhanced.

Source - Dhirendra Kumar - The Economic Times - 18/12/2012