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Seven wonders of SIP

seven-wonders-of-sip

When you receive your salary every month, just saving is not enough. That money has to be invested so that it can earn you more money. A Systematic Investment Plan (SIP) also called `the good EMI’ helps you do just that.

SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. It allows an investor to buy units regularly on a specific date of the month. If you invest through SIP it can work wonders for your financial goals.

Let us look at how you can benefit by investing in SIP

1) Rupee cost averaging
In SIP, a particular amount is auto-debited at fixed intervals regardless of the share price/NAV. Due to this, an investor automatically buys more units when markets are low and vice versa thus averaging the cost of purchase over time. This can go a long way in minimizing the effects of investing in volatile market.

2) Flexibility
The investor has the freedom to decide the amount, period and interval of SIP as per their convenience. They can also increase, decrease or stop the SIP anytime.

3) Diversification
SIP investors can have diversification among mutual funds depending upon their financial goals and risk tolerance. It follows the principle of don’t put all your eggs in one basket. This diversification often helps in minimizing the risk for the investor. They can have multiple SIPs of different amount for different time frames to suit their short, medium and long term goals. Similarly they can invest in different types of fund.

4) Helps you to meet financial goals
SIP helps you to get closer to your goals in a systematic and disciplined manner. An investor may have multiple SIPs, where each SIP investment is linked to a particular goal. This allows the investor to tune each investment aggressively or conservatively depending on return expected. For example if you have a goal to by a car in a year or two, the amount of investment required to meet that goal can be quantified easily. Thus, the investor can choose the right fund to achieve this goal.

5) Disciplined investing
Disciplined investing is necessary to build wealth in long term. Systematic investing is a disciplined plan that makes it easy to invest automatically. Investing regularly in small amounts can often lead to better results than investing in a lump sum. Your saved money will be utilized to build wealth, thus, saving you from spending your savings unnecessarily. For example, a monthly SIP of Rs.5,000 for a period of 20 years can build a corpus of 66 lacs at CAGR of 15%.

6) No need to time the market
Some people time the market to invest in stocks. However, timing the market requires extensive market knowledge, research, technical analysis and a lot of time from your end. Further it could also be risky. SIP eliminates the need to actively tracking the market and hence, you can stop worrying about when and how much to invest.

7) Benefit of compounding
It takes drops of water to make the mighty ocean. The small amount that you start investing today will help you build a big corpus. Regular investment helps in creating a substantial amount of wealth which includes your own contribution, plus returns compounded over the years. Start early to reap the maximum benefit.

Avoid last minute IT rush – Income Tax Proof Submission

tax-planning

The end of the financial year 2018-19 is fast approaching, and with that begins income tax woes 😉.

Most people keep the task of tax planning hanging till the end of the year. While doing so many of them get trapped in last minute investment ideas, which seems attractive, but actual calculation, they are not.

A proper tax planning can help you to minimize your tax liability with the help of productive investments.The income tax framework allows various deductions under different heads, which can be used to save tax, as well as link same to attractive returns. Some of the most popular heads are described below.

Section 80C (includes section 80CCC): This section allows taxpayers to claim deduction up to Rs.1.5 lakh per year. Under this section one can claim deductions for a huge list of investments; i.e. PPF, EPF, NSC, Postal, ELSS schemes of Mutual Funds, 5year Bank FD,Life insurance policy premium,Tuition fees (school),Home loan principaletc. Investment in these schemes can potentially save taxes worth Rs. 45,000/-.
To know which one is an ideal investment, click here: http://blog.moneyfrog.in/ask-what-else-elss-for-tax-savings-schemes-80cc/

(more…)

Health Insurance – What I need to know?

health-insurance

Medical expense is one expense,which we hate to spend-on, but it is also an expense which we cannot escape. Medical expenses are rising every year,even the smallest of tests prescribed by doctors, make us cough-up, at least couple of thousand Rupees. The lifestyle which we lead and the environment we are living in is contributing largely to the ever increasing diseases. Yet India’s health insurance market remains highly unpenetrated.

Some of the key terms, which are usually not explained by the seller, or we overlook at the time of signing the policy are explained below. But one should carefully read all the terms, conditions and clauses related to the insurance, before one finalises on the preferred health plan.

Capping’s:Many health insurance companies have certain capping (maximum limit), usually, a percentage up to which the insurer will settle the claim for hospital expenses.For example, on room tariff capping is at 2.5k daily limit & actual is 4k, insurance company will only pay 2.5k per day.

Co-pay:In co-pay feature, the insured is liable to pay a certain percentage of the medical expense along with the insurer. It is generally in the range of 10-20% of the total medical expense.For example: If your insurance policy has a co-pay clause of 20% and your medical expenditure has amounted to Rs.1,00,000, you will have to pay Rs.20,000 out of your own pocket and the insurer will cover the remaining Rs.80,000.Co-pay insurance is usually available at a lower premium than that of non-co-pay insurance.

Pre-existing disease waiting period:If an insurer at the time of buying a health insurance is suffering from any pre-existing disease (PED), there is a waiting period before one can claim hospitalization expenses related to the declared disease. This period ranges from 1-4 years depending on the ailment. It is important to be open about PED at the time of buying insurance. The insurer has the right to deny claim if it comes across any PED which the insured had not disclosed. People with any pre-existing disease should go for health insurance with lesser pre-existing waiting period.

Restoration benefit:Some health insurance policies come with restoration benefit. This means your policy will get refilled or restored by your insurance company in case it gets exhausted during the annual policy tenure. The restored sum can be utilized to that specific policy year only. It cannot be claimed for ailment for which claim has already been availed in the same year.

No-claim bonus:No-claim refers to the bonus given by insurer for every claim-free year. The type of NCB offered, and the discount rate provided vary from one insurer to another. Most of the private health insurance service providers in the market offer cumulative benefit to their customers.Most insurers offer NCB in the range of 5% to 10% for every claim-free year.No-claim bonus typically comes in two different forms:a) Discount on premium amount charged for a policy; b) Cumulative benefits offered in the form of higher sum insured amount.

List of hospitals covered:One should check the list of hospitals and clinics where your health insurance policy covers cashless treatment. With the help of cashless facility you won’t have to negotiate claims process. The insurer will settle the bill directly with the health service provider.

SIP or Time the Market?

Small is Powerful-SIP

The way market is behaving since last six months, most of us with running SIP’s, have this question, what to do next? Continue, Stop, Reduce or Increase SIP?

When we start an equity SIP, our calculation is based on the long term goal allocation & not the short term impact. Logic of SIP is based on two facts:

  1. Monthly Savings: where based on cash-flow, savings are parked in the allocated equity fund, else same will remain in the bank savings account (earning just 4/6%) till the time one decides, or best, will get consumed in some lifestyle purchase.
  2. Cost Averaging: idea is simple, no one can predict the market, therefore the best time-tested philosophy, is to make the best out of the market, i.e. to follow a disciplined approach on monthly investment, irrespective of the market movement (ups & downs of the market), and average out the cost, by buying at all levels.

In case your Goal is nearing, within 12 to 18 months, one should consider reducing or shifting major allocation towards conservative assets. Its recommended to speak & consult your advisor, before stepping or taking the final decision.

Reduce or Increase SIP allocation; one should desist making impulsive decision based on market swings and act like a cowboy. Again, its recommended to speak & consult your advisor on your rationale.

But if your cash-flow permits, keep on increasing your SIP, not because of the market swings, but an exercise, which one should consider every year, towards increasing SIP. Another way to increase, is to link the increase with the increase in income levels.

SIP has created more wealth with people across the world, than the Timing-the-market Cowboy’s, who would have made mediocre returns. Only problem, we don’t analyse, but get to hear more from the cowboys.

STP – investing in the volatile time

STP Transfer

STP stands for “Systematic Transfer Plan”, which means, one doesn’t want to invest in one GO, but in Parts, over a Period of time. For instance, you have 10 lacs in hand and seeking investment avenues for the entire 10 lacs. Easiest way is to shortlist a fund & invest fully (i.e. entire 10 lacs). But in the current market scenario, where market is swinging every second month (since last one year);is it a wise decision to invest fully?

STP comes as a rescue, where one can make this volatility work for your own benefit. First & foremost, let’s understand, one cannot ever time the market, therefore no point acting like a cowboy, or getting ideas based on celebrity talk-shows/ articles.

Since no one can time the market and the volatility, therefore the first rule is to park the entire funds in some conservative debt fund, where one can earn the base level returns. Next rule, based on your understanding, or with guidance with your advisor (highly recommended), one should now plan monthly transfers, from the debt fund to the preferred funds. Idea is to benefit from all levels of markets, i.e. market ups & downs, and average-out the cost of purchase.

STP is similar to SIP (Systematic Investment Plan), only difference is the source of funds at the time of investment; where SIP comes out of Income (or savings), and STP comes out from Lumpsum invested, usually in a conservative debt fund.

OH my GOD…. SENSEX at 35k levels!

OH my GOD…. SENSEX at 35k levels

If I’ll be you, I’ll not panic… Why?

If you look at the chart below, since June 28th, when SEXSEX was at 35,037 level, it climbed to a peak of 38,896 level by Aug 28th, i.e. in just two months a gain of 3800+ points or 11% UP. Did we question that point of time…why so suddenly the market went UP?

Again, if you look at chart below, from beginning of the year, i.e. 1st Jan, SENSEX was at 33,812 level, and from there it went to a peak of 36,283 level by 29th Jan, a gain of 2400+ points or 7% UP. And a correction or a reaction to the budget (key trigger), for the next 2 months slide.

sensex

Above all, key question is, when did I enter the market? The usual answer will be, not in this phase (last three months), i.e. most likely your investments will be spread over multiple years or months (if started recently). Your returns which was looking fabulous last month (when market was at its peak), will come down, but not down to levels, where one should panic.

Fundamentals aside, market sentiment is very weak, with global factors dominating today, over & above the IL&FS story. Crude relentless surge, dollar gaining, and looming trade wars/ sanctions are all driving the market/ sentiment mad.

If you are invested for a long term, i.e. at least 3 to 5 years+, JUST STAY PUT. But keep talking to your advisor, who acts as a coach in this troubled time, to logically explain you the market volatility & WHAT NEXT.

Quote of the Day: “we defend many of these nations (OPEC) for nothing, and they take advantage of us by giving us high oil prices. Not good. We want them to stop raising prices, we want them to start lowering prices,” President Trump.

 

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