What are corporate bonds? Should you invest in them?

As discussed earlier in - What is an IPO? -  when a company is in need of money it either raises funds via IPO or could raise debt by issuing Corporate Bonds or through Loans.

After a discussion on IPO, today we will learn about corporate bonds and loans.

The primary difference between Bonds and Loan is that bonds are the debt instruments issued by the company for raising the funds which are  tradable in the market i.e., a person holding the bond can sell it in the market without waiting for its maturity, whereas, loan is an agreement between the two parties, mostly with a bank, where one person borrows the money from another person which are generally not tradable in the market.

Now that we know loans have nothing to do with retailers, we shall focus more on CORPORATE BONDS!

What are Corporate Bonds?

Earlier when a company needed money, they used to approach banks for which the bank used to charge 10-12% interest. Whereas when we make an investment in Fixed Deposit banks give us interest of 5-6%

However, with corporate bonds the company can raise money directly from retailers (investors like you and me) @ 7-10% interest.

Therefore, bonds are a capital-raising tool by which corporate business entities can gather investment from the financial market. It is generally compared with Fixed Deposits. It is also referred to as Non-Convertible Debentures i.e these cannot be converted into a particular number of company shares at a particular time. However, please note that with the higher interest from bonds, comes higher risk - they are usually illiquid, you cannot sell them till maturity, they can default on your amount & interest. Lets learn more about them : 

Terms you should know:

  1. Face Value: Face value, also known as the par value. It refers to the bond's price when it was first issued.
  2. Coupon Rate: Coupon rate is nothing but rate of interest.
  3. Coupon Payment Date: Coupon payment refers to when interest is paid on a bond between its issue date and the date of maturity, for example, annually or semi- annually.
  4. YTM: It is the total expected rate of return that you will earn if the bond is held to maturity.
  5. Date of redemption: It is nothing but the scheduled maturity date. It is the date on which the bonds become payable.
  6. Redemption Value:  It is the price at which an investor may choose to repurchase a security before its maturity date.  For example if you did not purchase the bond at its face value you can later buy it on redemption value.  There are three types of redemption value.
  7. Redemption at par: This is when Redemption Value is same as Face Value
  8. Redemption at discount: When the redemption value is less than the face value it is known as redemption at discount.
  9. Redemption at premium: This is when the redemption value is more than the face value of the bond.

What if the company goes bankrupt?

If a company defaults on its bonds and goes bankrupt, you no longer receive principal and interest. Once the process is completed, you  might receive newly  issued bonds or cash whose value may not equal the value of the bonds they own.

Therefore, it is important to invest in a bond after checking bond ratings and understanding the credibility of the underlying company. A bond rating is a letter-based credit scoring scheme used to judge the quality and creditworthiness of a bond. It is also important to know /study the companies in whose bonds you are investing as its rating could drop and you may lose your investment or the same may get stuck if the management changed while you hold a AAA rated bond.

Things to keep in mind while investing in Corporate Bonds:

  1. High returns: Bonds are currently offering an annual interest rate (coupon rate) in the range of 8-11% and the yield (total return on bonds if unsold before maturity) on them is at least 9%, which is equal to or higher than the rates offered by bank deposits.
  2. Creditworthiness: It is safe to invest in bonds with. better credit quality (the company’s ability to pay) i.e -AAA, AA & A, lowering the chances of default. The lower end indicates poor quality and higher chances of default.
  3. Risks of Bonds: Look beyond ratings. Ratings do not account for all the risks associated with bonds. New risks could arise after you have purchased the bond.  Avoid investing in the bonds of companies where revenue shows a declining trend and the debt burden is increasing.
  4. Exit options: Consider your liquidity requirement before investing in corporate bonds and match your investment horizon with the bond’s maturity period, which is generally 5-10 years. 

Wealthcafe Advice:

Please note that bond markets are not yet developed in India. It is a good investment option for those who have surplus and are willing to take risk. For regular investors, investing in corporate bond mutual funds is a safer option as your risk is diversified. We would not advise a starter investor to invest in corporate bonds by only looking at the higher returns you generate from the same. 

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    What is DIY Investing? What are the pitfalls to avoid while investing by yourself?

    DIY or Do It Yourself is a concept that catches people’s fancy and has been in trend for the past few years. It makes you feel resourceful and worthy of doing things on your own. DIY Investing is something we have all always been doing. We ask our friends/family/That CA uncle for the purpose of investing. Think of it like health. We all get sick but do we always consult a doctor? Not necessarily ! If you have a cut in your hand or cold, your grandmother comes up with a DIY remedy. However, you cannot use home remedies for all health issues.  Similarly, you can start investing on your own for small financial goals or with some basic amount. As it is always better to consult a doctor for your health concerns, it is always better to have a financial advisor on your side.  Where you want to do DIY Investing, let's understand the process of the same. 

    The process of DIY investing:

    DIY investing allows you to manage your own portfolios with  full control. However, it’s not an effortless process. You must follow a specific and pre-defined methodology towards DIY investing to achieve the expected returns and sufficiently lower risks. 1. Define your needs and objectives Every investor must have  an objective, a set of goals behind their investments. We all save and invest money to achieve our goals such as travelling, buying a car, buying a house etc. If nothing, then the basic objective of achieving wealth creation or financial freedom is a must for everyone. So before you start your investment it is important to pen down your goals along with the amount needed for that goal. You can learn more about this in this article here - Goal based investment. 2. Know your risk profile Now that you know the amount you need and when you need it, the next step is to understand your risk profile i.e. how you want to reach the amount that you need. You must understand how much risk you are comfortable taking to achieve your goals. A person with an aggressive risk profile has a higher risk taking capacity and can invest, say 80% of his savings, in equity whereas a conservative person would invest a lot less in equities. The idea is that you take only so much risk that allows you to sleep peacefully, invest consistently and have a smooth ride to achieving your goals. Know more about your risk profile and how it helps you invest better in this article - What is a risk profile? How to invest on that basis? 3. Understand your Investment Option The next step is to understand all the asset classes. You should know which asset  class is right for you and what are the risks and returns associated with it. You can enroll in our course-  NM 103: Basics of Asset Classes. This course is all about setting the base with learning about the Investment asset classes and what they do.   4. Allocate asset allocation Based on your risk profile, it’s time to put your money to work. For example,  if you are of growth profile invest 70%% of your investment in Equities and 30% of your investment in Debt. A proper asset allocation is what will determine most of your gains rather the selection of the best equity share. 5. Construct plans and strategies After you have gathered and analyzed enough information  the next move is to develop ideas, plans, and strategies in line with their goals.  The plans include how much to invest each month, selection of financial instruments to invest in, tax considerations, and developing an investment strategy. The strategies can either be focused on growth, value, income, or a combination of all based on individual needs and priorities. 6. Implementation of the Plan & Strategy The plans and strategies are then implemented in the most practical manner possible. DIY investors might need to try various strategies before settling for one. Even after implementation, it is necessary to keep monitoring and evaluating the investment strategies and make changes as and when needed.

    Pitfalls of DIY investing:

    1. Lack of research and Professional Advice DIY investing may seem appealing, but the knowledge and experience of professional financial advisors  cannot and should not be ignored. It takes years  of experience to understand the market. You as a DIY investor will not be that skillful to handle your portfolio in every situation, especially when the markets are volatile. Everytime you believe this is it - there is something completely new that happens to be market and you will have to change your strategy. 2. Needs a lot of time Investing demands a lot of research and monitoring of your portfolio. You need to learn about your investment products, various asset classes, their features, risk & return, market scenario, global market conditions, its impact on your investments, how you should make a decision etc. Even when you consult someone to invest for you - it is very important you understand the basics of Investing. You can check our course for the same - Namaste Money. We start this course with a blank slate and handhold you through each concept as you baby step your way into finances. By the end of this course, you will be a better DIY money manager and investor. 3. Fear & Greed Emotions play an important role while investing. While you are investing on your own your fear or greed can oppose your investment strategy. Whereas, the financial advisor will not ask you to take decisions that are influenced by emotions.  Check out  our blog: What is loss aversion bias in investing? 4. Lack of monitoring DIY investing isn't just about doing your homework prior to making an investment. It is an on-going process. It is essential to monitor your investments. For example, if you are invested in a mutual fund, you need to check a few factors, for example what if the fund manager changes? You need to be updated with your investments. 5. Not rebalancing Investing isn’t a one-time exercise. You need to review and  rebalance (where necessary)it at least once a year. Check out our blog: Smart investing: Time to re balance your investment portfolio

    Wealth Café Advice:

    Anyone can be a DIY investor. But not everyone will succeed. Where you have the time and ability to do the skills required to invest on your own, DIY Investing can be fun and would save you the cost as well. Do note that finance is a continuous learning process. Where you are just investing based on tips and recommendations and calling it DIY investing, then it is better to seek professional advice and let someone else do it for you. You can reach out to us at iplan@wealthcafe.in.  If you want us to manage your investment, you can learn more about us at ria.wealthcafe.in and reach out to us.

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      Are Mutual Funds Safe?

      Are mutual funds safe? No it is not! Mutual funds are subjected to all investment risks that your underlying investment asset class is subject to and many more.

      Going back to the fundamental investing rule - High Risk = High Return; Low Risk = Low Return. Your returns are the rewards for managing the risk of an asset class. So if you are earning any kind of return from your mutual funds (which in most cases you are), there is a risk associated with them.

      The question should not be: Are Mutual Funds safe? Which are the safest Mutual Funds? You must understand the underlying risk of these mutual funds and invest in them based on your risk taking capacity. 

      How to Check the Risk of Investing in Mutual Funds? 

      Riskomter in fact sheet  - As per SEBI's product-labelling guidelines, AMCs have started disclosing the new riskometers for their funds. The five risk levels are ‘low’, ‘moderately low’, ‘moderate’, ‘moderately high’ and ‘high’. This helps investors get a better picture of the right risks associated with a particular fund. You must check the riskometer to get a brief idea of the risk of the particular mutual fund scheme.

      Standard deviation - A fund's standard deviation tells you how volatile or risky a fund can be compared to the benchmark and its peers.

      When prices move wildly, standard deviation is high, meaning an investment will be risky. Low standard deviation means prices are calm, so investments come with low risk. Instead of just looking at the standard deviation of a fund, you should compare the standard deviation of a fund with the standard deviation of the benchmark index to get a better idea of the risk

      When it comes to Debt Mutual Funds, there are some specific factors that one can check to know the underlying risk of the same i.e.

      1. Credibility of the fund

      Debt Mutual Funds can invest in securities with different credit ratings, as per the scheme's investment strategy. The credit rating of the security is listed alongside its name in the mutual fund factsheet. These ratings are assigned by different rating agencies and indicate the credit worthiness of the borrower. Higher the rating, higher is the creditworthiness of the borrower, although the returns may be lower as compared to a bond issued by an entity that has a lower rating.

      2. Duration of the fund

      SEBI has defined categories of mutual funds based on maturity or Macaulay duration of the fund. Put very simply, Macaulay Duration is the time taken for a bond to repay its own purchase price in present value terms. Generally, the longer the maturity of the instruments that the mutual fund holds, the higher the Macaulay duration of the fund. Typically the longer the maturity/duration of the fund, the higher the expected returns. But higher duration also leads to higher volatility in returns with change in interest rates.

      Simply put, ultra short duration funds, liquid mutual funds being the one with the shortest duration and underlying better credit securities (you must check the portfolio before investing) are the safe debt mutual funds to invest in. That is why we generally recommend these for any short term goals and emergency fund needs of our investors. 

      You can learn more about the underlying risk of Investing in Equity - here and Investing in Debt - here

      Wealth Café Advice: 

      As explained above, mutual funds are not safe, there will always be a certain level of risk in them. You must analyze that risk based on your risk taking capacity and invest only in those funds which you understand and are okay to bear/manage the risk to achieve your goals. Do not invest in small cap funds or thematic funds because they are trending and you are a conservative person. The funds will trend while you will have sleepless nights. You can’t entirely escape risk, but you can always manage it.  Understanding your risk capacity is the very first key step to help investors gain without pain. -What is a Risk profile? How to Invest basis that?

       

      Check our course- NM 104: Basics of Mutual Funds - to learn more about Mutual Funds in detail.

       

       

      Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision

       

      Pay taxes on Mutual funds - Unrealized vs Realized Gains

      Whether you are putting money away for a rainy day, retirement or anything in between, you are likely to be taxed. Investors do not think about tax expenses when making investment decisions, even though it is one of the crucial aspects of investing.

      Do you check pre tax and post tax returns before you invest your money ? Do you know how fixed deposits and debt mutual funds investments can impact your tax differently? Let's discuss how the difference in taxability of Debt Mutual Funds versus Fixed deposits becomes one of the factors you must consider when you make an investment decision.

      Difference between realized and unrealized gains in a mutual fund.

      Realized gains are the returns you make after actually redeeming(selling) your mutual funds. Unrealized or notional gains or losses are the ones which you see based on everyday market movements but do not book it. Unrealized gains only exist on paper and results from an investment which has yet not been sold.

      Taxation of gains

      Where there are unrealized gains - no tax is payable as you have not booked any profits. Only in case of realized gains, do you have to pay taxes in case of a mutual fund. So once you sell your Mutual funds and the funds are credited to your bank account, you have to compute your tax liability and pay capital gains taxes on the same.

      To know more about the taxability of mutual funds, check here - Taxation of Mutual Funds for FY 2021-22 (AY 2022-23).

      It is not that every other asset class, you pay taxes on actual basis, in fact in a fixed deposit, you pay taxes on interest accrued to you, even where the same is not credited to your bank account each year. This way Fixed deposit income is taxed differently as compared to debt mutual funds (because the gains are taxed only on realisation) 

      Let's take an example to help you explain how tax eats into your profits.

      For the purpose of this example, we shall consider that the returns from fixed deposits and debt mutual funds are the same. They will be taxed as per the relevant tax laws and how that would impact the net returns you can make from the investment. 

      Ria is the investor and she falls under the 20% tax bracket. She has made an investment of INR 10 lakhs in FD and debt mutual funds for 3 years, giving a return of 8% per annum.

      https://financial.wealthcafe.in/blog/2021/06/cost-of-inflation-index-fy-2021-22-ay-2022-23-for-capital-gain/

      In case of FD, interest will accrue to her every year, and she has to pay taxes on the same as per her slab rate every year, even where the same is not credited to her bank account. Infact, the interest after the taxes are paid will be reinvested.

      FD = INR 10,00,000

      Interest - INR 80,000

      Tax - 16,000

      Reinvestment of Interest in year 1 = 64,000

      (same reinvestment would happen in year 2 and year 3 - after tax)

      After 3 years: 

      Total tax paid - INR 48,000

      Net cash in hand = INR 12,04,288

       

      In case of debt mutual funds, she will have to pay taxes only on realization of profits. She decided to sell the same after 3 years and will have to pay long term capital gains on the same at 20% (with indexation benefits). So effectively, the tax she has to pay is less than what she had to pay for her fixed deposits. Also, the reinvestments would be of the entire earnings and not just post tax earnings in case of fixed deposits.

      Amount invested - INR 10,00,000

      Gains = INR 80,000

      Tax - Nil (No sale)

      Reinvestment of gains = INR 80,000*

      After 3 years

      Total Tax Paid - INR 32,565 (indexation benefit)

      Net cash in hand - INR 12,27,147

      *the returns are not assured in a debt mutual fund. We have considered this for explanation purposes here.

       

      From the above example, you can understand that the net cash in hand that ria would earn is 102% of the final amount from fixed deposits. Infact, if she was in the 30% tax bracket, she would make 104% more in the case of debt mutual funds than fixed deposits.

      This is how realized and unrealized gains impact your tax in various asset classes and also become one of the factors that one must consider when they are investing their money.

      You can also check our blog on -Why you should avoid investing all your money in a FIXED DEPOSIT?

       

      Wealth Café advice: 

      Please note that tax is not the only but one of the criteria that one must look at when investing their money in debt funds and Fixed deposits. Fixed deposits are safer and provide assured returns as compared to debt mutual funds. Debt mutual funds have many types and each has a different risk parameter. You can look at the liquid funds, or ultra short duration debt funds for lower risk and comparable returns to Fixed deposits. Please note that returns in all debt mutual funds are volatile and invest in them only after considering all the possible risks.

      Check our course- NM 104: Basics of Mutual Funds - to learn more about Mutual Funds in detail.

       

       

      Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

      What is a Risk profile? How to Invest basis that?

      Many young investors tend to invest on peer pressure or because someone asked them without understanding why they want to invest and how they should invest.

      There is only one answer to your ``Where to invest?”, “How much to Invest”. “When to sell” ? “How to get started?” i.e. risk profile.

      What is a risk profile?

      There is a risk associated with everything that you do in life. Whether it is a choice of the college that you want to study in  or the employer you decide to work for; everything that you do in life is associated with a certain amount of risks with anticipation of some return. Even your relationships have the risk - return associated with it.   Your investments are not any different, there is a risk - return relationship there as well. Every investment has an underlying risk and hence, you earn a return on the same. Hence, you must invest based on your risk profile - i.e. your risk taking capacity which basically means - How much risk are you okay to bear  in order to earn your desired returns. 

      Technically speaking, Risk profile is an analysis of your risk appetite in different situations. Every individual has a different tolerance of risk based on their age, income, financial stability, etc 

      Your risk taking capacity (risk profile) is a function of two things:

      1. Your ability to take risk ( Depends on your age, amount of wealth and urgency of goal)
      2. Your willingness to take risks (Depends on your wealth, life experience and your profession.)

      Remember the fundamental rule of investing:

      High Risk = High Returns

      Low Risk = Low Returns

      You can learn more about what investment risk is from our YouTube video here - https://www.youtube.com/watch?v=3pl5IIldDFE 

      Use our risk calculator tool to view your investment risk level. Find out your risk profile, estimate financial risk-taking capacity and understand your (psychological) risk tolerance level . This will help you know your asset allocation i.e. your Debt: Equity mix which will help you derive how much you should invest in each asset class.

      You must know the risk of your investments and then you must align your risk taking capacity with the underlying risk of the investments so you can sleep peacefully at night while your money is growing for you.

       

      Here are the most common risk profiles for investors: 

       

      SR NoRisk ProfileMeaningPercentage in Equity(Return = 15%)Percentage in Debt(Return = 8%)Expected Return
      1AggressiveWilling to take significant risk to maximize return over long term90%10%14.3%
      2GrowthSeeking maximum return over medium to long term with high risk70%30%12.9%
      3BalancedSeeking for relatively higher  returns over medium to long term with moderate risk50%50%11.5%
      4ConservativeWilling to take small level of risk for potential returns over medium to long term30%70%10.1%
      5DefensiveSeeking safety of capital, minimal risk and/or low return10%90%8.7%

       

      Why to invest based on a risk profile?

      It is very convenient to invest based on a random recommendation or a tweet or a telegram post. But does that really work for you? Does it give you the desired results needed to achieve your goals? Does it answer your question of how much to buy and when to sell? Such recommended buys are only half baked - Let me share an example with you, one of our Instagram followers had messaged us about her investment journey. Tanya (name changed) was a college graduate and had an urge to invest her internship stipend. It was a good initiative of her to invest from an early age; however due to lack of knowledge she invested in small cap mutual funds as her friends suggested, initially it was doing very well. Now given that she was a college graduate and was investing her only pocket money savings - small cap funds were a very risky investment for her. But she did not know this and invested all her savings in that. . Sadly after a year the market crashed in March 2020 and she faced more than  50% loss in her portfolio, and she sold all of them in panic. This is not Tanya's story but everyone’s. We are sure that at some point in time, you would have also bought and sold purely based on recommendations and regretted those decisions later.

       

      Further, we learn from this instance that if she would have diversified her portfolio based on her risk appetite, she wouldn’t have faced so much loss and would have in fact more money eventually because she would have continued to invest with the market loss. 

      I have written a detailed blog on my personal investment journey where I invested based on my risk profile and how I made over 28% gains from my portfolio. https://financial.wealthcafe.in/blog/2020/03/how-am-i-investing-in-current-times/ 

      As an  investor, your risk profile will help you plan your investments as per your risk bearing capacity so that in any worst-case scenario, you will never lose beyond your capacity. Hence, the benefits of the same are: 

      • It helps you in taking the right risk as per your willingness and ability.
      • Selecting the right asset class in check with your goal and risk profile, so that you have a perfect balance of rewards and risk in your portfolio.
      • It helps to keep your emotions away from your trading decisions.

      Read our article to understand how to invest based on risk profile: https://financial.wealthcafe.in/blog/2021/10/monthly-sip-for-higher-education/ 

      Wealth Café Advice

      Risk profiling is very important for every investor. Any investment planned without a risk profile analysis can lead to severe financial problems. However, with changing priorities and responsibilities your risk profile will change. For instance, the kind of risk you were willing to take at 20 may not appeal to you at age of 45. Therefore, revisit your risk profile every year when you are reviewing your portfolio. This will help to benchmark your risk tolerance without much hassle. To understand this better you can even seek financial advice  from a registered investment advisor.  You can reach out to us by filling this google form or at iplan@wealthcafe.in We are SEBI registered investment advisors and can help you make sound investment decisions. You can read about our advisory services at ria.wealthcafe.in

      Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

      Article headers14

      EDLI Scheme 2021: Features & Benefits

      The scheme of the name EDLI or Employee Deposit Linked Insurance is not one that many are familiar with. It is a Life Insurance of Rs.2.5 lakh that is built into your EPF Life Insurance of 7 Lakh.

      Earlier the maximum ceiling was Rs.6 lakh, Government increased the maximum limit to Rs.7 lakh with effect from 28th April 2021.

      Features of EDLI Scheme 2021

      • All employees who are members of EPF are automatically eligible for EDLI.
      • This Life Insurance coverage is irrespective of whether the death occurred during working hours or non-working hours.
      • It covers the death of an employee, irrespective of the cause of death.
      • There are no exclusions under this plan.
      • Coverage and premium will be purely based on your salary but not on age or gender.
      • Earlier there was a condition that one must complete a year to be eligible for EDLI. Recently they removed such restrictions. Hence, you are covered from the first day itself.
      • There is no maximum age set for this insurance.
      • You no need to add nominees separately. Your EPF nomination itself is considered for this scheme.
      • Your Employers can also set up a separate insurance scheme for their employees with approvals from the EPFO if they find that the current coverage is low.
      • You get covered even if you shift jobs and work for another employer covered by the EDLI scheme before you complete one year of service. Earlier, 12 months’ service was applicable under one establishment.


      EDLI Scheme 2021 – EPF Life Insurance of Rs. 7 Lakh

      Under new changes, now EPF offers Life Insurance of Rs.2.5 lakh to Rs.7 lakh. The employee will not contribute to EDLI. Only your employer will contribute to it. It is 0.5% of Rs.15,000 or Rs.75 per month to the maximum (based on your actual Basic+DA). The maximum amount payable by the employer is Rs.75.

      How is Employees’ Deposit-Linked Insurance (EDLI) calculated?

      The average monthly salary (Basic+DA) drawn (subject to a maximum of Rs 15,000), during the last 12 months preceding the month in which the employee dies, is first multiplied by 35 times (Earlier it was 30 times). This is added to 50% of the average balance in the account of the deceased in the provident fund during the preceding 12 months or during the period of his membership subject to a ceiling limit of Rs.1.75 lakh (previously it was Rs.1.5 lakh), is also paid to the beneficiary family. 

      Note that Rs.15,000 is the ceiling under the EDLI scheme for the purpose of this calculation even if your basic salary exceeds this amount.

      The minimum payable will now be Rs 2.5 lakh while the maximum will be Rs 6 lakh.

      Let us assume that Mr.A’s salary (Basic+DA) at the time of death is Rs.10,000. Then assume his last 12 months’ average salary was Rs.10,000. Then we have to multiply this by 35. This will be Rs.3,50,000.

      Now we have to add 50% of the average balance in the account of Mr.A during the preceding 12 months. Assume his EPF balance for the last 12 months is Rs.1 lakh. Then 50% of this is Rs.50,000. However, the maximum ceiling is Rs.1.75 lakh. Hence, his nominee will receive Rs.50,000 as a bonus but not Rs.1.75 lakh.

      So in total, his nominee will receive Rs.3,50,000+Rs.50,000=Rs.4,00,000.

      Now let us assume a simple calculation like one’s salary is Rs.15,000, then 35 times of Rs.15,000 is Rs.5,25,000 and the bonus added to the maximum is Rs.1,75,000. Hence, the total maximum benefit under the EDLI is Rs.7,00,000. The benefit will not go beyond this amount.

      How to claim the EDLI Benefit?

      • A nominee can claim the amount.
      • In case there is no nomination, then the legal heir can claim the amount.
      • If the nominee or legal heir is a minor, then a guardian of the minor nominee can claim the amount.
      • You have to fill the forms like Form 20 (for EDLI), Form 10D/10C (for claiming the Provident Fund dues and Pension/Withdrawal Benefit as applicable).
      • All details should be in BLOCK LETTERS.
      • Provide bank details (better to attach a cancelled cheque copy for accuracy of bank details).
        Attach the death certificate of a deceased employee.
      • Guardianship certificate (If the claim is on behalf of a minor family member/nominee/legal heir is by other than the natural guardian.)
      • Succession certificate (in case of a claim by the legal heir).
      • In case the members were last employed under an establishment exempted under the EPF Scheme 1952, the employer of such establishment should furnish the PF details of the last 12 months under the Certificate part and also send an attested copy of the Member’s Nomination Form.
      • You have to send such a filled application to the EPFO Commissioner through the employer.
        In case the company closed or they are not cooperating for a claim, then you have to get the claim form to be attested by any one of the following officials-Magistrate, A Gazetted Officer, Post/Sub-Post Master, President of the Village Panchayat, where there is not Union Board, Chairman/Secretary/Member of Municipal/District Local Board, MLA or MP, Member of CBT/Regional Committee EPF, Manager of the Bank in which the Bank Account is maintained or Head of any recognized educational institution.
      • A claim must be settled with 30 days of such submission.
        However, if there is any fault in filling the form or processing, then you will receive the letter from EPFO for the same and that too within 30 days.
      • If EPFO does not settle the claim within 30 days, then EPFO Commissioner will be liable to pay the 12% per annum interest on such claim amount from the date of the set period for claim settlement.

      Conclusion: For some, this Rs.2.5 lakh to Rs.7 lakh insurance may be a small amount. However, for many families, in case of the sudden demise of an employee, this amount would help a lot.

      Article headers11

      How To Get Your Kids Started On Managing Finances

      Hi there!

      We have always firmly believed that money is a habit best developed as a child. Some concepts like Savings, spending smartly, and not borrowing for unnecessary things is best inculcated in our formative years.

      For kids of ages 3 to 5

      They've probably started collecting some decent pocket money from birthdays, holidays, or a small weekly allowance. This is when we can start to teach them the three basic things we can do with money: save it, spend it, and give it. You might set up three jars for them so they can more easily divide up their money into the save, spend, and give categories.

      We’re not talking about a lot of money here, so as long as they’re putting something into each jar. Maybe the “spend” jar gets used to buy a candy bar in the grocery store or snacks for themselves. The “save” can be used for a special toy they want to splurge on. And the “give” money can be pulled out to give gifts to their parents/grandparents, buy something for your house help.

      Introducing the idea of saving, spending, and giving money now, in its most basic form, will lay the foundation for how you talk to them about money in the years to come.

      For kids of ages 6 to 10

      By this age, kids are starting to develop a deeper understanding of how money works. They understand that grown-ups have jobs to make money and that much of what they see around them—their home, the car, their Friday night pizza dinner—is paid for with money. You can start to explain to them the difference between using cash, a debit card (cash that you keep at the bank and the bank then sends to the store), and a credit card (you borrowed that money and will have to pay it back to the bank later).

      This is a good age to start letting them attempt to make their own simple purchases in a store. They’ll need your help with counting out the correct amount or with prompting when it’s the right time to hand over the money, but it’s good practice that will build their confidence about how the process works each time they do it.

      If they don’t already have a bank account of their own, this is a great age to open one up. They may have some money they keep at home in their jars or piggy bank, but it’s also good for them to get accustomed to the idea of stashing some money away safely and watching it grow as they add to it over time. Take them to the actual bank to open the account (they will feel very grown up), and take them back, if you can, each time they want to make a deposit. (Actually depositing the money themselves really drives home the idea that they are adding to their own little pile of savings.)

      For kids of ages 10 - 13

      At this age, you should start talking to your kids about how you decide what you spend money on. “Being able to afford it” and “choosing to spend money on it” are two totally different things, and it’s at this age that kids can really start to grasp why you prioritize spending in one area over another. For their next birthday shopping trip, take them shopping with you and keep a fixed budget, let them decide if they want to buy that toy, or have a party.

      This is also a good age to introduce the concept of long-term savings for bigger items. 

      For kids of ages 13+

      This is the perfect age to help them develop some different long-term savings goals, whether it be saving for a new gaming system, smartphone, computer, or even their first car. You should also be talking about what you can (or are willing) to pay for when it comes to college, so they’ll know what part they’ll need to plan for.

      Eventually, our kids are going to graduate with debit cards and credit cards, but I’d suggest you keep them using cold, hard cash for as long as possible. They are more likely to develop good money habits if they feel that little bit of pain when they hand over all that hard cash for a pair of sneakers. You feel a purchase more when this type of exchange happens—I give you money, you give me shoes—and their wallet feels a bit slimmer afterward.

      On the other hand, when you pay with a card—I give you a card, you give me shoes, and you give me the card back—the immediate impact isn’t felt, so the impulse purchases may soar.

      _______________________

      Teaching your children about money at any stage is going to take time on your part. But introducing them to money and imparting money management skills in these small ways mentioned above can go a long way in their future.

      Kids will follow your lead. Remember kids are always observing adult behaviour and building their habits and worldview around your actions. Therefore, be slightly mindful about your relationship with money around your children so that you can set them up for financial wins and not woes.

       

      Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

      Article headers10

      10 Financial Lessons That You Must Know

      These are basically the gospel truths of personal finance. It is a quick 3 min read but will definitely have more information than some long-form articles:

      1. Time is a Scarcer resource than money - Invest in a way that you can have more control over your time.

      2. Get rich quick and get poor quick are two sides of the same coin. As we always say: High Risk = High Returns and low Risk = Low Returns. Every time you look at returns, be prepared for the risk that comes with it.

      3. A house that you live in is your consumption, not an investment. Your second house can be considered an investment.

      4. Don’t pay interest to acquire something that loses value - Car & personal loans for weddings & travels must be avoided.

      5. A rise in income shouldn’t mean a rise in lifestyle. Well as we reach the new financial year, many of us would be looking at bonuses and appraisals, plan to invest a part of it before we plan our expenses.

      6. A penny saved is more than a penny earned. Save before you spend

      7. Invest in your mind and skills first.

      8. You don’t have to be rich to invest, but you have to invest to be rich.

      9. Market corrections come more regularly than birthdays expect them. For those who have been investing from April 2020, be careful there is more to markets than just going up.

      10. There is an inverse relationship between investment performance and time spent watching financial news. Only watching the news will not help you get high returns.

      11. The more complicated the investment advice the less useful it is. Go for simple advice which can actually help you apply it.

      12. Admire people who earn more money than you, not people who spend more money than you. Yes please, people who look rich are not always rich.
      ______________________________________
      We have our youtube videos live, where we are sharing highlights on investing in Equity this week - do check the videos to learn more here

       

      Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

      Article headers 8

      8 Easy Ways To Reduce Your Expenses

      Spend less than you earn. That’s the mantra of personal finance success. Every week, month, and year that you spend less than you earn, the more you save and the better your financial situation will be.

      A big part of that solution is cutting back on spending, and for many people, the thought of cutting back on spending seems unpleasant. Losing out on the things that bring you pleasure in life seems like a pretty steep price to pay for a little financial success.

      The secret is to intentionally target spending on the things you don’t care about and rarely use while holding steady on the things you do care about.

      Scale back on entertainment costs
      1. Cut cable: These days, streaming services and free over-the-air television provide more content than any one person could ever watch. Take advantage of the variety by eliminating cable service.
      2. Focus your interests on finishing rather than collecting: Rather than collecting physical or digital items in a media collection, focus on actually finishing those things or enjoying them to completion. For example, instead of buying yet more books that go unread, aim instead to build a long list of books you have read. Make doing the center of your hobby, not buying. After all, isn’t that what you really love?
      3. Don’t treat shopping as entertainment: It’s fine to go out in the town to be entertained but keep to a simple rule: don’t go into a store unless it’s for the purpose of buying something you’ve already decided you need before going in. Don’t go to stores just to browse for entertainment, as they’re designed to convince you to buy things you don’t need or even really want, but just react on impulse. Find other places to be entertained.

      Reduce your food costs
      4. Use a meal plan and make a grocery list: Instead of going to the grocery store whenever you feel like you need food, get into a routine of making a meal plan once a week, then constructing a grocery list from that plan. The time invested in making that plan is more than saved by spending less time in the store and having a list to stick to saves a ton of money on grocery store impulse buys that just sit in your pantry.
      5. Learn how to cook: Cooking for yourself doesn’t have to involve three-course meals or Gordon Ramsey-level skills. Start by identifying things you enjoy eating, then look for how to easily prepare it from scratch and with basic ingredients.
      6. Buy in bulk: The big bulk packages might seem like they have a high price, but they’re usually quite a bit cheaper per use, meaning you get more value for your dollar. If you frequently buy something at the store, look at the big bulk versions and save up for them. You’ll save over the long run. It's basically what our parents or grandparents did - buy - store and use efficiently.
      Cut your monthly bills
      7. Go through your bills: Sit down with every regular bill you have and go through it line by line, making sure you understand everything you’re being charged for. If something isn’t clear, Google it. If it doesn’t seem like something you should be charged for or is a service you don’t want, call the bill issuer and get it removed from future bills.
      8. Cut your subscriptions down to just the things you actually use: If you have a subscription or membership that you haven’t used in the last month, cancel it. Turn off any auto-renew you have with that service and allow it to expire. You can always renew it in the future if you decide you have a need for it again.

      What you should do with the money saved from trimming your budget?
      The key to making frugal living tips really work for you is to not simply spend that money on something else fun. Keep your “fun” spending at the same level and use the money you save when you cut down your monthly budget on something smarter.  Cut un-fun things like your energy bill for something financially useful that can build a bright future for you.

      One great option is to open an account and use your savings to create your emergency fund or you could save it up for your next trip. Whatever excites to reduce your unnecessary spending. These are just some of our suggestions. Do let us know what you had like to read and learn more about and we shall share more content on that.

       

      Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

      Article headers 4

      Mistakes To Avoid Before Making Tax Saving Investments

      We have entered March 2021 and soon we will be celebrating our 1 year lockdown anniversary. It Maybe not so much of a celebration but still, we have survived 1 year of COVID with some gains and some losses, and lots of learnings. Another reason to look forward to March 2021, is the last month to make all your tax-saving investments!

      Choosing tax regime without comparing liability The finance ministry in the previous financial year 2020 had introduced a new tax regime that gives individual taxpayers the option to pay income tax at a concessional rate.
      Read more about old regime vs new regime

      Notably, if you opt for the new tax regime with lower tax rates, you will have to forego the deductions and exemptions including the standard deduction, deduction under Section 80C, interest paid on housing loan, etc. This can be helpful if you do not want to lock-in your funds for a longer period in tax-saving instruments such as Tax Saving Bank FD, Provident Fund, etc.

      Comparing liability under the existing and the new tax regime while helping you to decide on the most suitable option depending on your income and expenses and customize your investment preferences accordingly.

      1. Failing to ascertain actual taxable income 

      When computing the taxable income, it is important to take into account all sources of income. Besides the income from salary, you may have income from a business, rental income from property, interest from bank/post office deposits, capital gains from assets, or any other source.

      Determining the taxable income is an important step in streamlining your tax planning exercise which will help you to correctly estimate the amount of tax-saving investment to be made for reducing your tax liability.

      2. Taking the wrong approach to insurance

      The primary purpose of a life insurance policy is to provide financial protection to dependents in case of the untimely demise of the insured person. Simply opting for a policy because it offers a tax deduction under Section 80C of the Income Tax Act, 1961 is an imprudent approach.

      There is a possibility that you may end up investing in investment cum insurance policies such as endowment policies, money back plans, or ULIPs that provide tax-saving components along with life cover in a bid to meet tax-saving requirements. However, you must know that these products will neither provide adequate cover nor generate optimal returns. A simple-term plan is enough to take care of your life insurance requirement at a very reasonable premium. Read this article to compute how much cover should you have

      3. Not aligning your Investments as per your goals and investment objective

      Ensure that you are not investing in 80C investment options only for tax savings purposes. Check how it fits into your debt - equity allocation which is determined based on your risk profile. Further, these investments should be made to achieve your goals not just for the purpose of tax savings. Align them to your requirements. Do not just invest in 80C investment options, if you have already exhausted this limit, you can explore options beyond Section 80C. Besides, certain payments that are eligible for deductions such as payment of house rent, expenses towards children's school tuition fee, interest payment on the home loan.

      Read these articles to  know more about your tax planning before March 2021
      1. How to save taxes before you invest your money.  
      2. Ways to save taxes under various sections of the Income-tax Act.
      3. Mutual Fund taxation
      4. How to save taxes on health insurance

      Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.





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