Things To Remember Before Taking A Loan Against Property

Things To Remember Before Taking A Loan Against Property

Hello all!

We’ve all thought about purchasing property. If not now, then maybe sometime in the future. And we’re here to tell you that it’s not as easy a process as you might think. Many people consider that where they have a property, they can easily take a loan against it. Read this article to know some points you can keep in mind, before you approach your bank for the same.

A loan against property (LAP) is a secured loan that banks, housing finance companies and NBFCs provide against residential or commercial property. These loans are usually offered at a lower interest rate as compared to a personal loan or business loan and are disbursed at a reasonable time. Anyone with a pre-owned property can avail such loans, whether they are salaried or self-employed in a business or professional setup. The quantum of loan sanctioned is also higher than what may be offered in other available options.

The demand for LAP is increasing among individuals because of three primary reasons:

It is cheaper than a personal loan.
The applicant can continue to occupy his or her property even after the loan is availed.
The loan can be used for a variety of purposes such as unforeseen medical expenses, children’s higher education and marriage, or setting up a business.
Besides, existing customers of a bank or housing finance company need not go through the document verification process again.

A loan against property is a boon for both business owners and salaried employees. Self-employed who are seeking funds for expansion of their business can make use of this facility. Salaried professionals facing a sudden medical crisis that may require long-term treatment, including expensive surgery, or sending children to a foreign university for higher studies can avail the facility for raising funds. A LAP not only leaves one’s savings intact, but it also comes at low-cost EMIs with repayment tenures of as long as 15 to 20 years. The low-interest rates on such loans dilute the repayment burden.

All these and other benefits help in the growth of the business or safeguard the financial future of both the loan applicant as well as his or her family. The only criterion for availing of a loan against property is that the loan should be for a legitimate purpose.

While it is relatively easy for existing customers to receive a loan against their property, new customers will have to furnish the necessary documents as well as credit history, repayment capacity and marketability of the property to be mortgaged.

An existing customer can also apply for a ‘top-up’ loan, but this would depend on factors such as repayment history of a preexisting home loan and outstanding balance on that loan, monthly income and loan to property value ratio. However, a fresh property appraisal is not required as the property is already mortgaged with the lender.

While these are the basics of a loan against property, there are other aspects to the loan that applicants must know. These are:

Loan repayment:

Since the loan amount that can be availed of against property is high, it is important that the borrower fulfils the required income criteria to repay the entire loan. It can be repaid over a period of 12 months up to 20 years, though the tenure varies from one lender to another.

Property valuation:

loan against property is provided against collateral; i.e., an immovable property such as a constructed residential/commercial property. Before deciding the eligibility and amount of loan, your lender will appraise your property. The amount will depend on the prevailing fair market value, not the past or potential future value. Housing finance companies usually provide up to 50-60 per cent of the market value of a property. Therefore, you should analyse the loan-to-value (LTV) ratio provided by your lender.

Ownership of property:

The lender will approve the loan only after it is convinced that your property has a clear and marketable title. Further, the co-owners need to be part of the loan and meet the criteria.

Any loan against property comes with a longer repayment tenure compared to a personal loan. The EMIs are spread over many years and the rate of interest is much lower. A longer tenure means lower EMIs, which reduces the monthly repayment burden.

Repayment Capacity:

The lender will evaluate your repaying capacity with the help of your income statements, repayment history, ongoing loans etc.

To sum up, a loan against property offers greater flexibility, lower interest rates, higher loan amount, and a longer repayment tenure and feasibility of end use. While the long-term advantages of this type of loan make it a much better option than personal loans, it is important to remember that if the borrower defaults on repayments, his or her rights over the property are transferred to the lender.

Disclaimer: - The emails 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.

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.

Income Tax / Investments / Money tips / Uncategorized - 03/04/2021

Harsh Mehta - 1992 Scam - Our Learnings

Hello fellow investors

Ishq hai, toh Risk hai!! Today, I am going to talk about the most acclaimed show of the Indian network currently - Harshad Mehta - 1992 Scam. Don't worry I am not going to give any spoilers. Through this article, it is my attempt to share the learnings about investing that we all can take home and apply.

Harshad Mehta, a name which is could be new to many young investors but is the reason why my father moved to Bombay and took up finance as his profession. He was the living God for many young investors back in 1992 and he also helped many people make money in the market. However, when the basis of his work and reality came to light, he also became the reason for many people losing their entire life savings.

Let's check out the learnings you budding investors can take from the show:

The 3 main fundamentals of investing in the stock market are 1. Have common sense 2. Do research on the fundamentals of the company 3. Do not underestimate how behavior and investors' confidence changes the tides of the market.
The entire show in fact focuses on the fact that the blinding trust of people in Harshad made them buy stocks of companies he was buying even where some of the companies had no business or value. Never just invest in tips + articles - Do your own research, it is your money.
Fear of missing out (FOMO) can lead to higher losses if not managed properly. You need to be able to control your emotions. Buying when the market is going up in the fear of missing out could make you lose more money. Buy when the price is right, not because everyone else is buying.
When you invest on the basis of a tip from anyone you are gambling in the market, playing your chances not really investing any money on fundamentals.
No one is the god of the market, the market waits and listens to nobody, there are many players and forces that make the market move, and having a proper process which guides you when to enter and when to leave will help you manage your risk of investing. One such process is asset allocation. We have written many articles to explain how this process helps you overcome your fear and FOMO and invest as per your risk-taking capacity.
Equity Investing is RISKY and has always been but over time, various financial institutions and SEBI has better control to protect the interest of investors, having said that there have been many crashes after 1992 which are beyond our control (including the one in March 2020). One thing to remember as an investor is a market high in 1992 was 4000 and 2020 was 40,000. After every crash, the market does bounce back, all you have to do is give it time. Hence, the key to success in Equity Investing has always been Long term !!
There will always be another market crash around us waiting to happen, we can never time that or control. As investors what you and I can control is our learnings, investing basis true fundamentals, and building a balanced portfolio that is designed based on goals and asset allocation, phir Harshad Aaye ya corona, Hume Nahi koi Rona Dhona.

This was a small email with some very detailed take-aways. Do enjoy the show, there are so many things to learn from it and I could not feel more proud to be a part of the time and space where Indian television is making shows which highlight the importance of financial literacy. The main learning from the entire show is that we must know how to manage our money, we must be financially aware so that no one can take any undue advantage of us and our money.

On this note of learning and becoming more aware, I want to inform you that we are coming out soon with our new course on money management - Namaste Money only for you - newbie investors. This will be a detailed online course where we will teach you everything from debt and equity to mutual funds to asset allocation. All our days and nights are going into finalizing the content of this course and opening it for registration. You can read all about 1this course here. Don't forget to give us your feedback.

stock market / Uncategorized - 10/20/2020

Should you spend or invest your bonus?

Hi fellow investors

The bonus season is here!
Given that we cannot use our bonuses immediately to travel anywhere as such, it is a good time to put our thoughts to what we can do with our bonuses.

Generally, what you do with your bonus is a very personal choice on how you want to use your lump sum money and make the most of it. I have made the following suggestions to help you make an informed decision.

1. Reward yourself
Bonus is the money that you get for doing exceptional hard work in the year that has passed by and it is only fair to use a part of it to reward yourself. You can use it to buy yourself that fancy gadget that you always wanted, go on that vacation, put it aside for your dream car, etc.

2. Create your emergency fund
Using your bonus amount to create your emergency fund of 4-6 times of your monthly expenses if you already don't have one. Given, the uncertainty of COVID 19 has not yet found a resort/calm it is best to have an emergency fund in place.

3. Pay your outstanding debt
Many people use their bonuses to prepay their loans and reduce the burden of a heavy loan. While how much loan you are comfortable with is a very personal choice, you can consider these 2 parameters to check if you should prepay or not.

If your loan EMI is 50% or more of your take-home income, you should use your bonus amount to prepay and reduce the same to a comfortable 30% - 40% of your take-home income.
If your loan EMI is 20% - 30% of your take-home income, you can continue the same and pay it from your monthly income and enjoy tax benefits. You can avoid using your bonus to prepay your loan.

Basically, if you are having sleepless nights because of outstanding loan amounts, then use the bonus to prepay and have a good night's sleep.

4. Cover up your tax-saving investments
My first advice is always to invest regularly even for tax deductions to avoid any last-minute cash crunch in February and March. However, if you have not done the same, then use your bonus to do so and plan your investments to claim the tax deductions.

5. Keep it aside for your dream goals
Take that photography/culinary course, put it aside for your trip to Norway, buy that bike, save up for your business idea you have - keep this money aside for any goal of yours that is important to you and can be used for your own dreams. Use the bonus money for something that would add value and make you happy.

Bonus is a good lump sum payment and it is good to use it for something that will have a lasting impact on you.

Have fun splurging and investing (at least some of it).

See you next Thursday!

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.

Money tips / Salary / Uncategorized - 07/23/2020

What To Do When You Lose a Part of Your Income

Hi there

Times are difficult, as the economy is getting back on its feet and everything is slowly opening up again. Payments have been delayed/cut and jobs have been lost amongst the various uncertainties that plague our everyday. Amidst this, it is very important to keep our heads straight and use this time and your money effectively.

Here are a few things that you can do right now to make the most of your money in case you have had a pay cut/job loss recently:

1) Keep a track of all your spendings

It is extremely important to prioritize your expenses and use whatever money you have effectively. Make a list of all your expenses - divide them into essential and non-essential expenses (and avoid this completely for a while). This way, you can reduce expenses which are not important at the moment.

We know shopping is relaxing and helps you feel good but do not use 'delivery start ho gaya' as an excuse to go overboard with online shopping. If you don't need something in the next few months as you are still working from home,- DO NOT SHOP! SAVE that amount instead! Use this time to evaluate all your unnecessary spendings and list them down and control it.

2) Use your Emergency Fund

This is what your Emergency Fund was built for. If you have been following us, you must be having at least 3 months' worth of your expenses on hand. DO use it to cover your essentials like groceries and rent. DO NOT use it to splurge on that big sale. Make sure you are spending your Emergency Fund sensibly. Cutting back on spending will help you stretch your savings for longer.

If you can take support from your parents/spouse/family - there is no harm in asking them for help. These are tough times and asking for help is not a bad thing.

3) Hide your Credit Cards

Hide this card, give it to your mother if you must, to keep it away; but do not use it. Credit cards may look very lucrative right now and even make you buy some things which you 'feel' like buying. Stay away from them. It will be a financial disaster, given the uncertainty around your future income and the interest rates that get charged on deferred credit card payments. Completely avoid using them.

4) Stop/Pause your Investments

If there is a reduction in income/ or no income now - it is advisable to stop/pause your SIPs until you have a regular flow of income to match up to them. If you have a credit card payment pending, use your savings to pay that off. But remember, the idea, for now, is to free up your cash flows, instead of spending or investing it away.

Also, evaluate your investments to check what you can do if things get worse (its good to be hopeful but better to be planned) and know all the avenues you can revert to if things go bad.

Ensure you have your health insurance & life insurance in place. If a health emergency strikes now, it can really eat into your savings, so it is better to be prepared.

As a last resort - if you have been contributing to EPF (Employee provident fund), you have the option of taking money out from the same, worth 3 months of your contribution to EPF. Do remember it will take some time to get this money credited to your account and we would recommend not touching it unless it is extremely important.

5) Start preparing for what is next right away

Update your skill sets, read about things that can help you become better in your field, and also garner more attention.
Update your social media and use it as a tool to interact and network with new people.
Take up freelancing work, many organizations are looking to hire part-time/freelancers for case-specific work - a good time to learn about that.
The idea is to reach out as much as possible, towards people and opportunities that may help you come out of this crisis sooner.

Clear communication and a positive planned approach will help you sail through this. Look at hidden opportunities in this to develop those skill sets, writing your weekly blogs (like this one :P) or catch up on your reading.

Whenever you feel like you're stuck in a difficult situation, it is advisable to seek the services of a good, honest financial advisor. You can always reach out to us for any financial problems that you may have. We are here to listen and help you out.

Until then keep reading, learning, and growing. This too shall pass.

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.

Uncategorized - 06/24/2020

How Many Mutual Funds Should You Have? (Part 1)

This week I am back with some discussion around Mutual Funds. In one of my workshops, during our mutual fund's discussion, I had this one trainee ask me - So what's your number?

I stared at her for a while not knowing what I am supposed to answer to that. Well, she rephrased her question, 'What is the number of mutual funds you are invested in?' I said, '6 Mutual Funds'.She had the bewildered look on her face wondering how I had so fewer funds. I decided to show her my portfolio.

How many mutual funds schemes should you own?

Owning around 5-7 mutual fund schemes across various categories is enough. These many mutual fund schemes will help you diversify, do your asset allocation, and also map these investments to your goals. You can invest your savings in the mutual fund schemes as per the below categories:

Large Cap Mutual Fund (Equity)
Large & Mid-Cap Mutual Fund (Equity) (your ELSS tax saving schemes are generally a Large & Mid Cap Mutual Fund)
Mid Cap Mutual Fund (Equity)
Small-Cap Mutual Fund (Equity)
Thematic Mutual Fund (where you understand specific sectors and have a higher risk-taking appetite)
Short Term Debt Mutual Fund (For your short term goals)
Long Term Debt Mutual Fund (For your long term goals)

In addition to the above, I have one Liquid Mutual Fund where I park my Emergency Funds. You can park your Emergency Fund in a Bank Fixed Deposit as an alternative.

Why only 5-7 Mutual Funds?

When you invest in Mutual Funds, you already diversify your risk across the stocks of the companies a particular mutual fund has invested in. Hence, with a large-cap mutual fund, your risk is diversified across more than 70 stocks that particular large-cap mutual fund has invested in. Investing in three different large-cap funds is not going to reduce your risk further, it will only make your investment portfolio messy.

'Mutual funds investing is to diversify your risk and not to di"worsify" the same'.

Further, reducing the number of schemes to a minimum of 5 also reduces the cost of managing the same and the time that goes in keeping a track of it and analyzing it regularly.

What do I do when I have more savings to Invest?

Increase your investment in the existing mutual fund's schemes you own.
Investing in a new scheme every time you have extra savings will just lead you to own 15-20 mutual funds schemes with no plan in sight. Hence, it is important to do your due diligence and identify the mutual funds you want to invest in and stick to them.

Yes, you must review your schemes regularly to see how are they performing in various market cycles but know that all schemes will not give you the best results always. There are some time periods where mid-cap and small-cap schemes will do better, other times when large-cap schemes will outperform and sometimes your debt investments will be the best performer for the year. Hence, it is important to be diversified across categories.

'Every time I check for the best mutual fund scheme and invest in the ones that are on the top'

Studies have proven that selecting mutual funds based on high-performance track records is naive. The Star rating of various mutual fund keeps changing, a fund that is top rated in this one year, is hardly the top-rated fund in the subsequent years. Tim Courtney, a chief Investment advisor of US-based Burns Advisory did backtesting of past performance of the funds most highly rated, he found that they usually performed poorly after they have gotten 5 ratings. Hulbert financial digest, an investment newsletter found that if investors continually adjusted their mutual funds' holdings to hold only the highest-rated funds, a total stock market index would have beaten them by 45.8 % in the past decade (he studied funds from 1994 to 2004 in the USA). In fact over the years, it has gotten even more difficult to beat the markets and get alpha on your investments. - extracts from Millionaire extracts - How to build wealth living overseas by Andrew Hallam

Hence, just investing in top-rated schemes is not going to give you the desired returns but only make your portfolio messy and not even get you the best returns.

Wealth cafe Takeaway - While you are investing in 5-7 different schemes across the options stated above, ensure that you invest across various AMCs as well. This will ensure that you are diversifying your risk and your entire money is not with only one AMC.

We shall follow up this article with a part 2 on how to downsize your portfolio.

Until then, keep reading, if you find this helpful, do share it with your friends.

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.

Making Money / Money tips / Mutual Funds / Uncategorized - 06/17/2020

Why do people 'NOT' consider financial education ' Important'?

Hi fellow investors!

A very dear friend visited me for lunch recently, and we had a nice afternoon chat. It was such a relief to see a new face to talk to and eat with. He also happens to be the Marketing Executive for another education company and we got talking about Wealth Cafe and why we conduct money workshops and teach financial education.

The most important discussion we had was around 'WHY' so many people don't consider financial education or money as a priority, and my usual long phone conversations with Harsh Vardhan Dawar (Founder & Director of Wealth Cafe) also majorly revolve around the 'WHY' and 'HOW' of Financial education, I thought it would be interesting to share the same with you this week.

Why it is important yet difficult to study about managing your OWN Money & Investments?

1. Money takes time to grow!

It does and we have always said it. When you buy chocolate, you get to enjoy it within 10 seconds of you purchasing it, whereas when you invest, you may finally enjoy its fruits only after years. Your Fixed Deposit of 10,000 becomes 10,600 after 1 year. 365 days. 8,760 hours. It takes time and it requires the investor to wait for it to grow.

Remember - Don't wait to Invest, Invest, and Wait.

2. Not a part of our dinner table discussions or school gang chats

Do you talk to your family about where you should invest your money or have your parents discussed it with you over dinner? If you have, then it's amazing, but most families don't have this discussion. Also, when we're hanging out with our friends we almost never talk about investments, savings, or goals (we may have mentioned the economy and stock market but not concrete discussions on how you can plan your finance).

#letschangethedialogue.

3. Money matters

For most of us, money is important until we have enough to buy and do what we want to do at the moment or maybe in the near future. Many of us are at a phase where we want to earn more and work (job/freelance) for it is the only option. Money matters a lot but only to the extent where it adds comfort to our present life.

We generally don't tend to ponder over questions like 'Will I have enough when I retire?' or 'Can I quit my job to start something of my own?'

4. Money is boring

Well, I have to face this, I love reading and talking about money and investments, but for a person without a financial background, it may not be as exciting. Not many people are pumped about getting up from their beds and reading about the nuances of Mutual funds or FDs. It is akin to researching the bacteria that caused you the toothache.

But if you love yourself, you go to be on top of your health and wealth. Either learn about it or have an expert take care of it for you.

5. Not a priority

While my friend and I were having this long discussion, I asked him if he had ever taken the effort to educate himself about money matters, and surprisingly, his answer was no! He said that there was never enough time for him to sort his finances or read up about it. Work always kept him busy and Alas! this is the most important reason.

If any of these reasons are blocking you or holding you back, let's work on it together.

When you work hard your entire life to make money, you can work a little to make your money work hard for you. It's all about prioritizing.

The important subject of Money Management is not taught at any level of school or college in India which is why the financial literacy of India is at a meager 2%. Without proper knowledge about financial products, one cannot make the right decision with respect to investments. At Wealth Café, we are working on doing that, our everyday effort is to make finance simple for you :).

Here's wishing that you also start taking that small effort to make your own money a priority for you.

Where you think any of your friend or family could benefit from this, please do share via email or Facebook :)

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.

Making Money / Money tips / Uncategorized - 06/03/2020

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Should I pause/stop my SIP?

The tides may appear to have calmed down for now but we never know what is in store for us next. Some relaxations have definitely come out and some more are expected. However, this does not cure COVID 19, it just prepares us for the new normal of living with Covid as we begin to resume our old routines.

While there are many uncertainties looming over us, including pay cuts and job loss, some of you guys asked us if they should discontinue/pause their SIPs under these circumstances?

Like always my answer to this will depend upon how much extra cash you have left each month and if there is an Emergency Fund (equal to 4/6 months of your monthly expenses) in place to take care of these uncertain times.

If you have not been affected by pay cuts, you must continue your SIPs as before. Additionally, since you are spending less than before, the savings again must get channeled into your investment portfolio.
If your pay has been reduced, counter that with the reduced spends, and if your total savings are still the same, continue with your SIPs. If the savings are lower, then you can dip into your Emergency Fund to ensure your SIPs don't stop. If you have not set up an EMergency fund, then you will have to reduce your monthly SIP to match the amount you are able to save each month.
If you have lost your job, or your salary has been paused, then you can fall back on your emergency fund to take care of your monthly expenses. SIPs will have to be stopped and will suffer.

What is the point of SIPs right now?

SIPs (known as systematic investment plans) are where you invest a fixed amount of money into a choice of your mutual fund at regular intervals (generally monthly). It is an automated process and the amount is debited from your bank and mutual fund units credited to you.

Buying in a falling market reduces your cost giving you higher benefits when the market goes up. To understand this better, let us run you through this example.

You get more units when the fund's NAV (market price) is lower
You get less units when the fund's NAV (market price) is higher.

As of 10 May, the NAV is priced at 85, hence the value of your investments will be 54,880 @5% loss.

Instead of doing SIP, had you invested a lump sum of INR 60,000 on 15 November, you would have got only 600 units (as opposed to 669 here) and the value of your investments would be INR 51,000 on 10 May 2020 (at a 15% loss).

No one knew that the market would fall so drastically and be so volatile in 2020, but your SIPs definitely help you to invest in a staggered and make most of the down market.

Everyone wants to know when we will reach the bottom to buy the maximum number of units. But it is anyone's guess when the markets will reach the bottom or what the bottom price is. Hence, SIP is your friend in such markets. When you continue your SIPS, your amount keeps buying a varied number of units (more in a down market) and thus, helping you to average your cost of buying.

Do not stop your SIPs now just because the markets are down, for all you know this time may turn out to be a bargain and help you get better returns in the future.

Investments / Uncategorized - 05/17/2020

How to manage my irregular/business income?

This lockdown seems to be going on forever with no respite in sight and we just have to find a way around it. We are all trying our best to make the most of this time, use this time to read more, catch up on movies, and learn a new skill. Some of us have started new side ventures and blogs.

As a part of this process, many of you have asked us how you should manage your irregular income as a freelancer/entrepreneur. Many business owners feel they do not have good control over their cash flow and it is difficult to plan for their own finances. This email is to help you understand how to manage your cash flows as a business owner.

1) CREATE AN EMERGENCY FUND

This will always be important and becomes critical as a business owner. You must project your expenses and cash requirements for 6 months and have that much funds kept aside in liquid investments like Fixed Deposits or Liquid Mutual Funds.

As your income is erratic but your expenses are regular, the Emergency Fund comes as a great support and you can dig into it to pay your bills in those months where the income has been a bit slow. Always, ensure to refill your Emergency Fund to back to its original value during time or surplus cash.

2) YOU SHOULD HAVE 3 BANK ACCOUNTS

Having separate accounts for your various needs will ensure a smooth flow of cash and you will know where exactly your money is going.

Bank account 1 - Business Account
Bank account 2 - Personal Account
Bank Account 3 - Investments Account

Bank Account 1 - All your business income and expenses must be taken care of from this bank account. This will also help you to file your financial statements and know the exact numbers for your business.

Bank Account 2- You must transfer an amount for your personal basic living expenses to your bank account 2. This is the account from where you will spend on your food, home rent, everyday conveyance, etc.

There are months when you do not have enough from your business to take care of your personal expenses and in such times your rainy-day friend - emergency fund comes to your rescue. Please note that the emergency fund is to be used for basic spends not for parties and shopping!!

Bank Account 3 - This is the bank account from where you will INVEST. The months in which you make great revenues, you must transfer an amount from your Business Account to Personal Account to Investment Account and Invest that money for your future goals. These goals can be either personal or business.

Having a separate account from where you invest helps you to keep your money in an organized manner (all the extra funds will always be invested) and at the time of redemption, all the redeemed money will flow back to your Investment account. This will help you have control over your investments as well.Today when you have just started to invest, this all may seem like a lot of work, but you must understand that after a few years when you have made investments and business has grown, it will be very difficult to backtrack and put things in place and hence, the same should be done today!!

Use this time to understand how your money is flowing and put a process in place for it. We shall see you soon with more articles on the same.

Money tips / Uncategorized - 05/17/2020

SIP top-up (Increase your SIP amount)

What is the SIP top-up (step-up) facility?

A systematic investment plan (SIP) allows you to put a fixed sum of money every month in a mutual fund. But most of us get a raise in our salaries every year. This means we can afford to increase our investments. But how do you do that in a SIP that is already going on? Enter top-up or step-up facility. It is important that as your income grows, the quantum of investment should grow too.

How wealth is created under SIP top-up plan?

	SIP	SIP top-up
Investment Amount	5000	10% increase per annum
Investment Product	Equity	Equity
ROR	12%	12%
Period years	20	20

The amount at the end	49.46 lakhs	98.45 lakhs

Hence, you can see that by increasing your SIP by 10% each month, you will create wealth which is twice as much as your investment amount. This is how SIP top-up helps you generate wealth faster.

Decide on the amount you want to increase your SIP by, or by the percentage of increase. You can also cap your amount in case you think you won't be able to afford a monthly investment beyond a point. For instance, in our example above, a 5% annual increase would mean you would need to invest Rs11,790 every month in the 10th year and Rs30,580 in the 20th (final) year. Once your monthly installment hits the ceiling, your top-up facility stops and then you keep investing that same amount for the rest of your SIP tenure.

Wealth Cafe Actionable - Where you are a salaried individual, ensure that you do a SIP top-up based on your regular increment in your salary amount.

Uncategorized - 07/02/2019