Wealth Habits – Learn, Unlearn and Relearn
When the entire world was upgrading its defence technology in preparation for a World War III or a
similar situation between neighbouring countries, no one taught us that World War III would be
fought with social distancing, wearing a double mask and getting vaccinated against COVID. Lesson
learnt “Human discipline is more important and critical than any technology to discipline machines”.
In India, the second wave arrived with a slew of new challenges. Earlier this year, no one was
bothered to get vaccinated. At the same time, the Government took early warnings very casually
and started exporting a few vaccines, which resulted in a complete disaster and failure for India and
us as Indians. We start taking things more seriously and responsibly when some of our known faces
lost their lives. The second wave disaster also showed us a mirror of how poor our health and
medical infrastructure in India. These results, like oxygen shortage and lack of accessibility of
medical infrastructure, have shown us how far we are in reaching the mission of Healthy India. Every
one of us saw immense frustration and our inability to do anything.
How India would react and what lesson it plans to take forward from this disaster will decide the
future of a healthy India? A country with 132 bn people should first have an excellent medical
infrastructure before thinking about any other advancement. We usually listen from big
management gurus that our failure will teach us the biggest lesson of your life and I hope with the
days gone by we learn some great lesson about our casual approach and indiscipline rather than
criticizing the Government or local body.
“Pahla sukh nirogi kaya, dusra sukh ghar main maya” COVID pandemic gives us callous times not
only physically and mentally but also financially. Now it’s time for us to question, “Are we seriously
managing our money well? How important is an emergency fund which we often overlooked and
withdrew to go on vacation with family?
Read: Everything You Need To Know About Wealth Management – Fintoo Blog
In this short span, we saw many families where the children have lost their parents, sometimes both
their mother and father. Are their parents adequately covered, and have they made proper
arrangements so that their children will get the funds or insurance money smoothly? Also, as
responsible parents, do we teach them how to handle such unpredictable situations? It brings us to
a profound realization – Is earning money and investing enough? Educating our children on how to
manage wealth is equally important. Here are some of the outstanding money habits or lessons we
should essentially consider for a better situation-
- If both the parents are working, then it is advisable to keep three months’ mandatory expenses as
your Emergency Fund. If your spouse is not working, then six months of mandatory expenses should
be your Emergency Fund. Mandatory expenses mean your grocery expenses, EMIs, school fees,
house rent and any other expenses you can’t avoid in the coming 3 or 6 months’ time. It is also
advisable to open a separate bank account and deposit the amount there to remain untouched
there. - Educate kids about your investments and insurance policies if you have taken any. It is also
advisable that one of your loyal friends or relatives should also know about your insurance plans and
investments so that they could help and save the boat in case of any uncertainties. - Your planned vacations or other big expenses like buying a car, luxury parties and hotel expenses
must have decreased from the last year. It is an excellent opportunity. If you don’t have an
emergency fund, do use this money to create an emergency corpus or invest this money for a long-
term goal. - The Pharma and Healthcare sector looks very promising in the next five years. Anyone who has
equity exposure can see Pharma and healthcare sector as emerging sector in coming years and can
allocate at least 20% – 25% of their equity corpus in health and Pharma stocks or Health and Pharma
sector mutual funds. - We have to understand the importance of WILL. While you are at home, do accumulate all your
wealth details and prepare a simple excel sheet. Sit with your family (spouse and adult kids), disclose
it to them, and give them a fair understanding about it. Create a simple WILL without any
considerable legal troublesome effort. An ordinary paper-written WILL is also acceptable and helpful
in the smooth transmission of the assets. - Understand the difference between direct investment and investment through some agents,
brokers or financial planners. In this challenging time, if your spouse or kids cannot do all the
exercise of getting insurance money and other transmission formalities, you should invest your
money with the help of some financial planners, agents or brokers? If a spouse or kids possess sound
knowledge and a fair understanding of how to get insurance claim money and other formalities, it is
advisable to take the direct route. Merely saving a few pennies (brokerage or commission) can
sometimes make your entire investment at stake. Take a decision wisely; your friend or neighbour,
or colleague’s situation may be different from yours.
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To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP
Unheard Facts of Budget 2021
Some of the facts which you don’t know about Budget 21. Here is the list
1. ULIP maturity is TAXABLE. Budget 2021 has proposed not to provide tax exemption under section 10(10D) of Income Tax Act for maturity proceeds of the unit-linked insurance policies (Ulips) with annual premium above ₹2.5 lakh. The rules will apply for Ulips issued on or after 1 February 2021. According to Budget memorandum, “Under the existing provisions of the Income Tax Act, there is no cap on the amount of annual premium being paid by any person during the term of the policy. Instances have come to the notice where high net worth individuals are claiming exemption under this clause by investing in Ulips with a huge premium. Allowing such exemption in policy/policies with huge premium defeats the legislative intent of this clause.”
Related Article: ULIPs with an annual premium above ₹2.5 lakh to be taxed.
2. TDS deduction by buyer if paying more than 50 Lacs in a year for purchase of Goods. Section 194Q of Income Tax. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax. Explanation.––For the purposes of this sub-section,
“buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
3. Limit of tax exemption of Interest on Provident Fund: In order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earn on the employee’s contribution to various provident funds to the annual contribution of Rs 2.5 lakhs. This restriction shall be applicable only for the contribution made on or after 01/04/2021.
4. Relaxation to NRI for Income of Retirement Benefit Account: In order to remove the genuine hardship faced by the NRIs in respect of their income accrued on foreign retirement benefit account due to mismatch in taxation, it is proposed to notify rules for aligning the taxation of income arising on foreign retirement benefit account.
5. Timely deposit of Employees’ contribution to labour welfare funds by Due Date: Delay in deposit of the contribution of employees towards various welfare funds by employers result in permanent loss of interest/income for the employees. In order to ensure timely deposit of employees’ contribution to these funds by the employers, it is proposed to reiterate that that the late deposit of employees’ contribution by the employer shall never be allowed as deduction to the employer.
6. Exemption for Leave Travel Concession (LTC) cash scheme: In order to provide relief to employees, it is proposed to provide tax exemption to the amount given to an employee in lieu of LTC subject to incurring of specified expenditure.
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP
Complete guide on Covid-19 Medical Insurance
It all started from the month of December 2019 that we started witnessing the spread of coronavirus. The contagious viral infection that still doesn’t have any cure as no vaccine is introduced yet has kept us under lockdown for over 100 days now.
Covid-19 positive cases have risen in these past few months but at the same time people are getting recovered too. So that’s something positive we can look forward to. We are living in a world of uncertainties which are increasing day by day.
Millions of people are infected all over the world. During this time, there has been a flood of questions related to medical insurance. I am glad that people are now talking about the need for medical insurance. During such times, it is even more crucial to seriously consider including medical insurance in your financial planning.
Based on my experience and interaction with so many people and their families, I have realised that the ones who are young and healthy do not opt for medical insurance. This is because they feel nothing is going to happen to them. And the ones who have medical conditions find it difficult to get a cost effective and adequate cover.
So the point I would want to make here is getting an adequate health insurance is a preventive measure to protect your finances in case something as unfortunate as corona or any accident happens. It is better you get it early in your life so that you can enjoy more features and better coverage.
Now coming to questions that you might have in your mind regarding the current covid-19 and health insurance plans.
Read here: 7 Reason Why You Should Buy Insurance
Let me answer some frequently asked questions. I have divided these questions in two segments i.e. one for someone who already has taken some health insurance policy and others who do not have any insurance at all till now.
FAQs from people who have medical insurance
Q1 – If I get diagnosed with covid-19, Will my treatment be covered by my insurance company?
Answer: Well, as per IRDA all the health insurance companies offering indemnity based covers are instructed to settle the claim for covid-19 patients on priority. Also, it is important to know that the main features of your health insurance policy remains the same be it covid-19 or any other disease.
Let me brief you about 2 important features of health insurance policies to get better clarity on whether it be covered or not.
- Hospitalisation of 24 hours – This is common ground on which all health insurance policies work. If you get admitted into the hospital for at least 24 hours then only the cost will be covered by your insurance company. Few day care treatment is also covered in most of the policies but it does not apply to coronavirus. So if you are not admitted to the hospital, then you will not get your cost reimbursed.
- Pre and post hospitalisation expenses – Once you get hospitalised, majority of the insurance companies will also cover your pre and post hospitalisation expenses up to 35 and 60 days respectively. This means if you had incurred cost on covid-19 test pre hospitalisation, then that cost will be covered. However, if you are someone who got yourself tested and the report said negative then you cannot claim that expense from your insurance company. In short, diagnostic expenses are not covered by insurance companies unless there is a positive case and it leads to hospitalisation of at least 24 hours.
Q2 – What about expenses incurred for quarantine?
Answer: Based on the above two features, quarantine that does not require hospitalisation and treatment will not be covered.
Q3 – Can insurance company ask for additional premium in my existing policy to cover COVID-19?
Answer: No. As all the current health insurance policies which are indemnity based are already covering the novel coronavirus. You need not pay extra to cover the same. However, if you wish to enhance the sum assured then you will have to pay more premium.
Q4 – One of my friends already had a medical insurance, but still the company rejected the claim. What could be the reason?
Answer: Like I said before, all the features of health insurance policy remains the same. Let us say, if a person would have purchased the health insurance policy just 10 days prior to testing positive for coronavirus then definitely insurance company will not settle the claim. As the general rule, be it corona or any other disease, you cannot file for a claim in first 30 days of the policy purchased.
Q5 – I have a critical illness cover that I purchased 2 years ago. Is COVID-19 covered under this plan?
Answer: No. Existing critical illness covers do not provide cover for Coronavirus.
FAQs from people who do not have any insurance
Q1 – Which policy to buy that covers COVID -19?
Answer: All the health insurance companies offering products which covers covid-19. So study the detailed inclusions and exclusions before buying a health plan for you and your family. Low premium should not be the criteria to select a health plan. Instead look out for maximum coverage and a claim settlement ratio of over 90%.
Q2 – I have heard about standalone health insurance policies. What are those?
Answer: IRDA has instructed all health insurance companies to come up with a standard Benefit Based Covid-19 health insurance product by July 10, 2020. This is mandatory for the companies to offer. The cover ranges from 50,000 to 2.5 lacs with a single premium for 105 days or 195 days or 285 days. As proposed, benefit equal to 100% of the Sum Insured shall be payable on positive diagnosis resulting in hospitalization.
I hope all your questions are answered related to health insurance plans amid COVID-19. I highly recommend to invest in a good health insurance plan providing adequate cover. For the ones, who already have health insurance should check whether the cover is adequate. If not, it is suggested that buy additional cover.
Maintain social distance, wash hands regularly and stay insured!
How to select the best mutual funds for long term?
Mutual funds can be your pick if you wish to benefit from stock market and still want to stay away from actual share trading and instead would like to get the funds managed by a professional and experienced fund manager. Mutual funds can be aligned to your timeline and time horizon of financial goals. Instead of investing in fixed deposits or insurance unnecessarily for long term, mutual funds would be a best choice which gives out inflation adjusted returns and outperforming performance as compared to those conventional investment instruments.
Mutual funds have become a very popular source of investment for most investors. They come in different variants, allow affordable investments through Systematic Investment Plan (SIPs), help in saving taxes and provide great returns. The inherent risk is diversified as mutual fund schemes invest in a variety of stocks and shares. This is what makes mutual funds ideal. They provide attractive returns at lower risks compared to the share market.
When we talk about long term investments, Mutual funds are a good option. Whether you are planning to create an education fund for your child, buy a house, plan for your retirement or accumulate wealth, a mutual fund is your solution.
Do you know how many mutual fund schemes are available in the market? Too many to count! As such, it becomes difficult for investors to make a choice. To make your work easier, here are some essentials to look for to suit long term goals.
Essentially this is just general pointers list, however requirements may vary from one investor to another.
Considerations for Choosing A Mutual Fund
- Allocation Of Assets
As the very first step you need to understand the type of portfolio you want for your mutual fund investment. The portfolio of a fund is termed as asset allocation. An ideal and balanced asset allocation will strike a decent act by managing the risk components along with maintaining security with money market instruments.
The key consideration of asset allocation is that you need to have a proper mix of both high risk and low-risk components. As per experts, the allocation of secure components should match the age of the investor.
For instance, at an age of 40, you need 40% allocation in secure instruments. This shows that with age your investment should comprise more secure components. On the other hand younger, you are, you need to invest more in equity.
Read here: Points to consider while investing in Mutual Funds
- Short Listing Fund Types
Now that you have an idea of portfolio or asset allocation, depending on your age and risk appetite you need to make a shortlist of funds that perfectly match your desired portfolio and return.
Now you need to compare among a lot of funds based on their performance, approach of investment and overall reputation. You can get the details about the year on year return of any fund through the prospectus of the fund and other industry publications.
More than just the last annualized return you need to target metrics like return achieved over the benchmark and consistency of performance.
As for choosing a fund, you need to consider your financial objectives first of all. Is it your retirement or old age planning for which you are investing in Mutual Funds or it is for luxury spendings? Whatever be the objective, to gain more monetary growth you need to have bigger risks.
But obviously, there is a limit of taking risks as mutual funds are addressed for population willing to ride growth while enjoying the security of their Money through diversification and few money market instruments.
- Making The Final Choice
Now that you have made a shortlist of funds as per the considerations mentioned here above, you finally need to pick a fund that suits your investment goal.
First of all, you need to check its past history starting from the date of inception. Check the holding pattern of the fund besides checking funds performance online.
You can also look for top funds in your preferred asset class on the basis of your financial objectives, and risk appetite.
As I mentioned earlier, when checking performance more than just considering its latest return focus on the return offered by them in comparison to the benchmark. Lastly, always study the fund manager profiles to gain confidence in the crucial expertise needed to manage such funds.
- Understanding How Diversification Helps
Wherever there is equity there is potential risk and chances of growth. So, Mutual Funds also have their share of risks and opportunities. But in spite of the risk involved majority of mutual funds offer good return year after year. How is this possible?
Well, Mutual Funds follow the aged principle of not keeping all eggs in one basket. So, by diversifying the assets across sectors it not only minimizes the risk but also ensures growth.
For instance, if your investment portion in telecom sector stocks face loses, the engineering or banking sector stocks within the same time frame can fetch you a good return. In between some stocks will not give any substantial gain or loss. Thus the diversification helps in managing risk and securing growth for the long term.
Conclusion
In addition to the above, you may also check Tax saving element and absence of exit load to finalize your decision. Equity linked saving scheme can also be selected which serve dual purpose of investing for long term and tax saving.
This is how you should be selecting mutual funds to provide the best-in-class returns and to become ideal for your long-term investments. So, analyse the funds based on criteria discussed above and take your pick. You would be amazed at the returns you earn.
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP
How Much Life Insurance Do You Really Need?
If your family member or anyone depends on you financially, Insurance is a must have product in your portfolio. When it comes to insurance, there are various types of policies with varied benefits and features.
Which is the most beneficial policy for you?
How much insurance do you need?
These are few questions that need to be answered before buying a life insurance policy. Buying a life insurance policy is important but what is equally important is to buy adequate insurance.
In this article, we will discuss insurance need analysis by thumb rule method which is easy & quick to calculate. Important point to remember while applying thumb rules is the calculation won’t give you the exact insurance amount you should have. But it will definitely give you a fair idea to start with. Exact insurance depends on various factors like age, dependent needs, goals, liabilities etc. Although these thumb rule methods won’t give exact insurance required but with these methods we can calculate minimum insurance required and get ourselves started.
If you would want to know the exact insurance cover required for yourself, you may get in touch with a financial planner. This will help you to get the answer to this question customised to your needs.
Now let us start with these thumb rules.
1.Based on yearly income
The first thumb rule is based on your yearly income. Ideally, a person should be insured to the extent of 12-20 times of his yearly income. Lesser the age higher the multiple. Here Income refers to net income means income left in hand after reducing your taxes and personal expenses. Please note that we are talking about your personal expenses here and not the family expenses.
This is one of the easiest ways to calculate minimum insurance required. For example, a person aged 25 has yearly income of Rs.5 Lacs and spends Rs.50,000 on his personal expenses throughout the year. He then should be insured to the extent of Rs.90 Lacs (Rs.5 Lacs – 50000 =Rs. 4.50 * 20 times).
Read more:- 7 Reason Why You Should Buy Insurance
2.Based on family’s monthly expenses
The second important thumb rule takes into account your expenses. Based on expense method an individual should be insured to the extent of 80 to 120 times of his family monthly expenses. The underlying assumption here is we need to plan for adequate insurance by making provision for their regular expense if we are not there.
For instance, a person’s family monthly expenses are 50,000 then he should at least have an life insurance cover of Rs. 60,00,000. ( 50,000*120)
3.Income plus expenses method
As per this method, a person should be insured by following both methods – i.e.income method and Expense method. It is a combination of income method and expenses method. In the first part, insurance is calculated as per the income method and in the second part, the amount required to pay off all the loans and financial goals are added to the first part.
For e.g. as per first part income method insurance calculated is Rs.50 Lacs and second method other loans and goals totals to Rs. 30Lacs. In that case total insurance needed is Rs.80 Lacs.
4.Affordability of premium as % of your income
An individual has various responsibilities and priorities. Insurance premium is treated as expenses if it’s paid for pure insurance policies. An individual ideally should pay around 6% of monthly income as insurance premium for self-insurance. As more members of the family are insured he can increase this by 1% per person.
Premium paid for savings and investment plan should not be considered, only pure insurance cost is calculated as part of the limit. Many companies follow this thumb rule while buying insurance under group insurance policy for their employees. Now that you are aware of how to calculate the amount of insurance required, you are ready to take the first step. It is suggested that you use these thumb rules as a guiding principle only. They can provide a framework for you to assess your individual needs. To get a more accurate idea of the amount of insurance required, you may get in touch with a financial advisor. Don’t wait and start investing in an adequate insurance cover by downloading the fintoo app.
8 Common Investment Mistakes You Must Avoid
Strategies of wealth management are some basic fundamentals that everyone should be aware of. The power of intelligent investment in the creation and multiplication of wealth is indisputable. However, many of us are not aware of some basic flaws that every investor might fall prey to. We often treat terms associated with investment strategies as financial jargons meant only for the erudite. But, working knowledge of investment is not hard to gather. Armed with this basic knowledge, we shall be equipped to make sure that we are not losing our hard-earned money.
In this article, we shall explore 8 common mistakes that investors have been making over the years and which should be avoided in order to facilitate long term wealth accumulation.
1. Ignoring Insurance
We cannot emphasize how important it is to have a well-suited insurance policy in place. Insurance policies make sure that the well-being of you and your loved ones are safe-guarded in case of any unforeseen circumstances. It provides you the knowledge that your family will be taken care of, your children will be provided for and all your financial commitments will be honoured even in your absence.
However, I have met many youngsters in their 20s who believe that they are invincible and thus above the purview of insurance policies. They forget that it is when you are young that the policies are cheapest and as you grow older, the policies keep getting more expensive. Hence, chances are that by the time you realise the indispensability of insurance policies, you will not be eligible for many of them.
Moreover, as the money in terms of periodic premiums keeps accumulating, you are privy to a bank of forced savings that have very low-risk factors associated with them. Moreover, insurance premiums are also eligible for tax benefits. Thus, when the insurance term matures, you have access to funds that will supplement your retirement plans.
2. Confusing Between Investing and Trading
Although these terms are often used interchangeably by young investors, there is a world of difference between investing and trading. If one is not completely aware of the ropes of the market, chances are they expose themselves to financial losses by trading with the wrong stocks. However, a diversified portfolio with equities that have a proven track record will help grow your savings in the long run at a moderate risk quotient.
3. Basing Investments On Ups and Downs Of Stock Market
If there is anything you should know about the stock market, then you should know that it is volatile. Stocks performing big on the first hour of the day might end up losing big as well as the day progresses. Thus, gambling your money away on the ups and downs of the Sensex arrow is never advisable. It is much more prudent to invest in healthy stocks with a proven 5-10 years track that will appreciate your wealth slowly but steadily.
4. Too Short Of Time Horizon
The golden rule of investment states that the longer your money stays invested, the greater are your returns. Such is the beauty of compounding interest. Thus, if you constantly keep taking out money from your investments, you will never be able to accumulate enough interest. It is due to this reason that most investment vehicles like fixed deposits, provident funds and ELSS mutual funds have a certain minimum lock-in period.
5. Not Starting Early Enough
The old proverb goes-“The early bird catches the worm”. Indeed, it is never too early to start investing. In fact, the earlier you start investing, the higher you end up gaining in terms of returns due to the magic of compound interest. Let us illustrate this phenomenon with an example.
Mr. A starts investing at the age of 20. He invests Rs X in a scheme that doubles his principal amount in 10 years. Thus at the age of 30, his investment grows to 2X, at the age of 40, it grows to 4X. At the age of 50, he has 8X and he has 16X when he is ready for retirement.
Now, let us consider B starts investing when he is 30. He invests Rs X in the same scheme as A. But when he turns 60, he ends up with only 8X amount. He has lost eight times his initial investment by starting 10 years later. You get the picture, right?
6. Not Having A Systematic Investment Plan
By investing small amounts regularly in a SIP, you gain the following advantages:
- Since you do not have to come up with a lump sum amount to invest, you don’t feel a financial burden or the inability to honour prior commitments
- You become a more disciplined investor
Trust us when we say that if you do not have a Systematic Investment Plan, you are losing out on your money.
Must read:- Why Do You Need Insurance Along With SIP To Create Wealth?
7. Complicating Things
Many investors have the habit of dabbling in different equities every year. This makes it all the more difficult to stay top on your portfolio and make informed decisions. Instead, a well-chosen basket of consistent stocks in your portfolio serves the purpose of wealth multiplication quite well. And it keeps things simple.
8. Working With the Wrong Advisor
Of all the investment blunders that you might perform, this is perhaps the gravest. A wrong investment advisor will result in more than just financial losses. Thus it is very important to study the past performance of a financial advisor before choosing one. Moreover, keeping an eye on your portfolio is advised and with good reason.
Investment strategies might be a dime a dozen. The onus of choosing one that works for you lies with no one else. However, with a little amount of research and determination, carving out the path to glory is not that difficult as long as you are avoiding the pitfalls that we have outlined above. Start early, keep investing small amounts in regular intervals and watch your wealth grow. You may download the Fintoo app to start your investment now.
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP
10 Reasons Why You Should Go for Online Term Insurance?
You can never be sure of what is there for you in the future. You are having fun and enjoying the present moment…