INSTAEMI: FINANCIAL-PLANNING

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Retirement doesn’t mean you retire from life. This is an opportunity to try something new, travel to new places, etc. For all the needs you need to build a retirement corpus, which should be started early to accumulate sufficient money.

Retirement planning is an important aspect of financial planning. For deductions done towards payment of premium of retirement plans, benefits are available under Section 80C and 80D of the Income Tax Act.

Steps in retirement planning

1. Set your retirement goals.

2. Assess your current financial position.

3. Identify retirement income sources.

4. Evaluate retirement risks.

5. Understand health care issues.

6. Invest your retirement assets.

7. Manage your retirement income.

8. Monitor your retirement assets.

Points to be considered for retirement planning

1. Developretirement budget :

Look at what you are spending currently in major categories like groceries, medical, eating out, etc. They may change but you will have an idea of the normal expenses. You need to factor inflation at around 3-5% per year.

2. Reduce Debt :

As the retirement period approaches, reduces your debt as much as possible including mortgage debt. The less number of obligations you have, the more you will have for personal expenses.

3. Unforeseenmedical expenses :

Old age typically brings medical problems and increased healthcare expenses. To prevent any unforeseen illness consume your entire retirement corpus, you need to buy a medical insurance.

4. It’s nevertoo late :

If you are starting late, make sure that you cover up for the lost time. It will be easier to sacrifice now compared to later.

5. Invest forthe future :

Employee’s ProvidentFund is the most popular retirement saving instrument in India. National Pension Scheme has an annualized return around 10% for 4 years, it also provides tax benefit under sec 80C.

Equity is the best instrument for long term investments, the returns are high when invested for long time horizon.

If you feel the calculation is time consuming, you can login to https://www.instaemi.com/ and find the corpus needed at the time of retirement.

Acquire these

Review Portfolio -

You need to keep track of current investments. Get rid of those investments which are giving negative returns. Your returns should match with the financial goals. Reviewing portfolio helps in assessing any additional investment requirements.

Maintain a budget –

As the Finance Minister prepares budget for the whole nation, you need to maintain a monthly budget to know the expenditure and income. You need to monitor monthly spending to avoid unnecessary expenses.

50-20-30 rule should be followed, which is fixed costs - investments- flexible spending.

Create an emergency fund –

Emergency fund is designed to cover a financial shortfall when an unexpected expense crops up. It might be job loss, illness or accident which creates a situation where your regular source of earning comes to halt.

You need to maintain minimum 6 months worth income as emergency fund.

Have an exit strategy –

You invest to reach your financial goals. You need to have an exit strategy for every investment as too long investments will lead to disappointment.

In case of equity investment stop- loss should be around 20%.

Pay your bills on time –

It is advisable to pay your bills well in advance to avoid huge payments at a later date. Delay in payments would have negative impact on your credit score.

Be a disciplined investor –

Opt for automatic transfer of funds. You need to direct around 30% of your income towards investments.

Discard these

Rolling over credit card debt –

When you miss a credit card payment, the creditor adds late fee which causes to lose extra money. Late credit card payments damages credit score. Always pay off the entire outstanding as quickly as possible.

Overspending on luxuries –

Allocate a specific amount in monthly budget for refreshments, eating out, movies, trips, etc. You shouldn’t use more than 30% of the monthly budget for luxuries.

Neglecting product maintenance –

Product maintenance can save you a lot of money on repair and replacement cost. Maintenance work on your car, AC, house reduces the cost of replacement.

Using credit card for reward –

Avoid unnecessary credit card purchases for earning reward point. You need to avoid credit card purchases that will create monthly payments for many years. Differentiate the products which can be purchased through credit card and which cannot be.

Using EMI options for credit card dues –

You will end up paying more than actual cost of the product which includes interest for EMI scheme and processing charges. Too many EMI schemes impacts the credit score.

Ignoring credit score –

Every financial transaction of an individual is recorded and is reflected in the credit score. Credit score is critical for availing loans. A person with good credit score has chances of getting loan at good rate of interest.

A credit score of 750 and above is considered good credit score.

"Someone’s is sitting in the shade today because someone planted a tree longtime ago.” – Warren Buffet

Financial planning is the process of achieving life goals using different investment options. Financial planning is necessary as it helps you to meet the long, medium and short-term life goals. It is not only monetary, but also helps in fulfilling your dreams. It makes you feel secure and ready for the future.

STEPS IN FINANCIAL PLANNING

Determining your current financial situation.
Developing financial goals
Identifying alternative course of action.
Evaluating alternatives.
Creating and implementing a financial action plan.
Re evaluating and revising the plan.

THINGS TO BE DONE

You need to first set aside money as saving and then start investing.
You need to maintain emergency fund in case you fall ill or loose job.
You need to buy just enough insurance.
You need to do goal based planning wherein you invest for specific financial goals which are to be met in the future.
You should continuously review and revise your financial plan to remain consistent with your goals.

If you’re not sure with managing your own money, you can consult a financial planner/advisor to do the same. A financial advisor is an expert who will help you in avoiding financial blunder.

When should you meet a financial advisor? It’s now, at www.instaemi.com

Yes, your Mutual Funds can be used as collateral against loans. These loans are called loan against securities/ LoanAgainst Mutual Funds units (LAMF). You can borrow money for short period instead of stopping Mutual Funds SIP or redeeming your Mutual Funds. You can avail a loan against mutual funds from Public sector banks, Private Banks and NBFC’s.

The interest would be around 10% - 13% depending on the bank and type of fund pledged.

You can avail loan only against the eligible Mutual Funds listed in the bank from which you are Borrowing. Banks don’t lend for subscribing another scheme of Mutual Funds.

You should send a letter to the Mutual Fund/ Registrar requesting to mark a lien on units in favour of the financer. Lien is a document that gives bank right of ownership to hold or sell funds. If you default the loan, lender can evoke the lien and recover the dues.

Mutual fund units pledged with the bank can’t be redeemed or switched, during the tenure of the loan, but the dividends earned would be credited to your account.

The amount of loan is linked to the Mutual Fund net asset value(NAV) and not to the face value. The extent of funding against Mutual Funds is around 40%-50% of NAV.

Plan to tackle your day—and financial goals—with confidence. Invest in Mutual Funds at www.InstaEMI.com

Buying your first house on a loan comes with multiple tax benefits. These deductions not only reduce your tax outgo but also help in managing your cash flows better.

Here are all the deductions you can claim when you take a home loan:

1) Deduction on interest: If you are paying EMIs for a home loan you took to buy a house, the interest component in the EMI can be claimed as deduction. You must be both an owner and a co-borrower (in the loan) to claim tax benefits. This deduction can be claimed starting the year in which the construction of the house is completed. Suppose the construction of your house was completed on August 30, 2014, you can claim deduction for interest for the entire 12 months in financial year 2014-15. So every year a maximum of Rs.s 2 lakh can be claimed for a house that you use for your own residence. If your house is rented, the entire interest for the year can be claimed as deduction.

The interest payments for the year shall result in a loss under the head 'income from house property'. This loss can be adjusted against in the same year against other heads of income in your income tax return including salary. Therefore, it reduces your total taxable income and the tax you pay thereon. Assuming your interest outgo for financial year 2014-15 for a house you use for your own residence is Rss. 1.8 lakh, income under the head salary is Rss. 8.5 lakh, income from other sources (interest income) is Rs.s 52,000 and your loss from house property is Rss. 1.8 lakh.

In such a case, your total taxable income will be Rs.s 8,50,000 + Rs.s 52,000 - Rs.s 1,80,000 = Rs.s 7.22 lakh.

2) Deduction on principal repayment: The component of your EMI which goes towards principal is eligible to be claimed under Section 80C of the Income Tax Act. You can sum up the outgo for the year towards principal and claim it. A maximum of Rss. 1.5 lakh can be claimed as deduction under Section 80C.

3) Deduction on stamp duty and registration charges: Besides the deduction allowed on principal repayment, payment made towards stamp duty and registration charges are also allowed to be claimed under Section 80C. However, these can only be claimed in the year in which these were paid.

4) Deduction on pre-construction interest: While deduction for interest can be claimed starting the financial year in which the construction is completed, you can also start claiming pre-construction interest from the same year. You need to add up the entire pre-construction interest and claim it in five equal installments. The total deduction, however, should not exceed Rss. 2 lakh when the house is being used by you for your own residence.

5) Deduction under Section 80EE: This section has been inserted to provide tax benefit to first time home owners where value of the house is Rss. 40 lakh or less and the amount of loan taken is Rss. 25 lakh or less. To be able to claim this deduction, the loan should have been sanctioned between April 1, 2013 to March 31, 2014. A maximum deduction of Rs.s 1 lakh is available under this section and can be claimed in financial years 2013-14 and 2014-15 spread over these two years or in any one year. The total deduction allowed under Section 80EE cannot exceed Rss. 1 lakh. This section lapses in the current financial year 2015-16. So, if you meet all the conditions laid out in Section 80EE, do remember to claim the deduction while filing your tax returns for financial year 2014-15.

Door to your Dream House Opens easier with www.InstaEMI.com

You can reset the Higher rates banks charge old home loan customers

Just like bank depositors, those borrowing from banks also need to be alert in order to protect themselves against unnecessary charges. Here are the most common areas where banks tend to overcharge customers.

If you compare the interest costs of your friends and relatives on bank loans-housing, auto, personal loan, etc. you will realise that they vary drastically. And these costs not only vary across banks, but across customers of the same bank-and not because of varying customer credit scores. Some banks have been offering Loans at cheaper rates to new customers, while charging old customers a higher rate. "Banks continue to follow the discriminatory practice of offering differential rates for existing and new customers and this should stop." saya Ramganesh Iyer, co-founder, Fisdom.

As the banking regulator, the Reserve Bank of India (RBI) should stop this discriminatory practice, which it is partly responsible for creating. The RBI introduced the MCLR (marginal cost based lending rate) method, effective April 2016, to enable a faster transmission of rate cuts to bank customers, replacing the base rate method that was being used by banks to set their lending rates—earlier the base rate had replaced the less transparent prime lending rate (PLR). Now, borrowers who took loans at cheaper rates, based on MCLR, old customers are still paying higher rates.

“Since banks offer different rates, it is better to visit some common aggregator and understand the lowest rates available in the market. This will help you bargain better with your bank,” says Dipak Samanta, CEO, iServeFinancial.
To reduce your interest outgo, you need to shift your loan from base rate or PLR to MCLR. Shifting to MCLR now is a good move, say experts. “Though RBI’s stand is neutral now, rates may not go up from current levels. In fact, they may come down later—after an year,” says Balwant Jain, investment expert. Bear in mind though, in an upward moving interest rate regime, MCLR will move up faster than base rates, just like it falls faster in a reducing interest rate regime.

Loan reset charges

There are two types of loans: Fixed and floating rate. Floating rate loans are supposed to mirror the rise and fall in interest rates set by the RBI. But this rarely happens. While banks increase rates immediately, they are very slow in cutting them. The introduction of new benchmarks has also turned out to banks’ advantage. They charge customers for shifting from one benchmark to another— from PLR regime to base rate regime to MCLR regime now. The charges are levied to meet the expenses involved in drafting and registering new agreements—stamp duty, registration charges, etc. Though these expenses vary across states, ordinarily they won’t be more than 0.2% of the outstanding amount. However, some banks try to profit from this also by charging around 0.5%.

Should you go for a reset even if it involves a small charge? Yes. The amount you save will be significantly higher over the years. To illustrate, consider the case of a home loan borrower with Rs 50 lakh outstanding loan amount and a 15-year tenure. A 1% fall in interest— from 9.5% to 8.5%—will bring his EMI from down from Rs 52,200 to Rs 49,250, a reduction of Rs 2,950 per month. A total saving of Rs 5.31 lakh—significantly higher than the reset fee of Rs 25,000 even at the maximum rate of 0.5%. You may be able to get this reset cost down by negotiating with your bank. A threat of shifting to another bank often works. “Another way is to approach the branch manager. Based on the value of your relationship, they can reduce or even waive charges,” says Samanta. The ‘value of relationship’ here is crucial. If you have multiple relationships with the bank—savings bank account, credit card, other loans, investment, etc.—you have a valuable relationship and will receive a favourable treatment.

Most individuals are confused as to how to plan their finances. Especially when it comes to investment, one is torn between investing in real estate, Gold, Stocks, Mutual Funds or go traditional by opting for fixed deposits. We normally go by the advice of our friends, relatives or any acquaintance. Now predicting your returns on these investments are purely speculative and your success in each of these depends on how well you understand the industry, market and potential.

For the sake of argument, let us look at Mutual Fund investments in the long term, assuming that the return on investment is going to be 15%.. Ideally you should start investing from your first job itself to take advantage of the power of compounding. A small investment of Rs.1000/month over 10 years can get you 2.75 Lakhs, over 15 – 6.7 Lakhs, over 20 – 15 Lakhs and so on and so forth. So you can see that the longer you stay invested, the better your returns are. This is possible due to the power of compounding.

Let’s say a certain Mr. Singh lands his first job at 20 years and starts a SIP of Rs. 2,000 for 5 years. This would potentially earn him 1.75 Lakhs at maturity, which can easily fund the down payment for his first car. Similarly if he continues to invest a systematically throughout his professional life, he will be able to retire into a financially independent life.

Looking at the chart below listing the investment plan and expected return, you can see how much a small investment of Rs, 5,000/month can get you over a 25 year period. A whopping Rs. 1.6 Crore.

Life Stage	Age	Purpose	SIP Amount	Period (Yrs)	Expected ROI	Total Investment	Maturity Amount
Job	20	Car	2,000	5	15	120,000	175,000
Settled	25	House	5,000	10	15	600,000	1,375,000
Family	30	Graduation	3,000	15	15	540,000	2,000,000
	30	Higher Education	3,000	20	15	720,000	4,500,000
	30	Child's Marriage	2,000	25	15	600,000	6,500,000
	35	Pension Corpus	5,000	25	15	1,500,000	16,000,000

Total						4,080,000	30,550,000

You can see that by calibrating your investments at each of your life stage can go a long way in meeting your financial goals. Let’s take a look at his returns and what life event it was used for.

@ 25 Years – Rs. 1.75 Lakhs as down payment for Car

@ 35 Years – Rs. 13.75 Lakhs as down payment for House

@ 45 Years – Rs. 20 Lakhs for child’s Graduation

@ 50 Years – Rs. 45 Lakhs for child’s higher studies

@55 Years – Rs. 65 Lakhs for child’s Marriage

@ 60 Years – Rs. 1.6 Crore Retirement Corpus

And how much did he invest in all – little more than Rs. 40 Lakhs over a 40 year period.

So contact your financial advisor today and sign up for a SIP. A small investment today can set you on the path towards a fulfilling and financially free retired life.

Disclaimer: Mutual Fund Investments are subject to market risks. Read the offer document carefully before investing.

How to do retirement planning yourself?

Good & Bad financial habits

Why financial planning is necessary?

Can mutual funds be used as collateral?

can home loan interest be deducted on taxes?

Lower Your home loan EMI

You can reset the Higher rates banks charge old home loan customers

The SIP way to Financial Freedom

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