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Health Insurance: What You Need To Know During COVID

These are cloudy, stormy times and it doesn’t look like the sun’s going to come out any time in the near future. This article -tough as it is to write- is important because we need to be ready for what is happening and what the future could possibly hold for us. Let us try to keep finances out of the worries mounting us, and look at ways in which we can strengthen our financial shield.

Let’s start with the basics:

1. Have some money in your bank account: Have at least 10%-15% of your salary in your bank account in case you need to make any urgent payments.

2. Have some cash on you: We’ve more or less lost the habit of keeping cash with us, but keep around INR 10,000 – INR 50,000 (depending on your income & needs) for unforeseen expenses

3. Do not rush to invest in Equity: Even though it is tempting to invest for quick results, but at the moment, liquidity is key.

Moving on, to the most important point: HEALTH INSURANCE.

It may seem expensive, but at this juncture, you need one. If you don’t have it yet, don’t wait around, get one immediately. Let’s go through some health insurance basics. How does it work and what do you need to know?

· You take health insurance for yourself and you pay a premium for the same (it’s like motor/car insurance), where you get sick & hospitalised, the health insurance company pays your bills for you and you do not have to worry about it.

· Type of Health Insurance:

1) Individual - You can take health insurance only for yourself or 'one single' person like either of your parent/sibling.

2) Family Floater Plan - You take one insurance cover for all your family members.

·  Things to keep in mind: You must disclose all your existing health issues in the insurance or they may reject your claim on the basis of incorrect/incomplete information.

It doesn’t end with just having health insurance you must know its features as well. Most Insurance policies provide COVID cover; check the features and confirm it with your insurance provider. In case it doesn’t, you should consider porting it to another insurer that has this feature. Corona Kavach or Corona Rakhshak Policies will cover COVID care at home.

Prerequisites for using your insurance policy for home care under COVID:

·  A COVID positive report from an ICMR-approved lab

· Doctor's prescription for home isolation and treatment

· Note that antigen reports are not honoured by the insurers. The reports have to be RT-PCR having Specimen Referral Form (SRF) ID.

· There are two conditions when domestic hospitalisation is recommended. First, no medical facility available at the hospital, and second, when a patient's condition is too serious to visit a hospital. So, this is not really a COVID specific thing. In normal cases also domestic treatment is covered under health insurance policies

· This involves medication, nurses' and doctors' visit at home to measure vitals and tests such as CT scan X-ray and of course COVID. Essentially, all medical expenses until the person tests negative are covered. However, there is no concept of pre- and post-hospitalisation expenses in home treatment.

· Also, note that for mild COVID cases where you're treating it at home using antibiotics, you cannot claim insurance on the same.

You should also know that hospitals cannot deny cashless Health Insurance claims. If they do, here’s what you must do:

·  IRDAI directed Insurance companies to ensure the availability of cashless facilities with all empanelled network hospitals by putting in place a continuous communication channel with all the network providers.

· Cashless claim is available only at empanelled hospitals/network hospitals which come under your respective insurance provider. You can check this by visiting the website of your insurance company.

· Keep a list handy of all network hospitals for your insurance provider, so that if the time comes you won’t have to run around in search of a hospital.

Finance Minister Nirmala Sitharaman had asked IRDAI chairman SC Kunthia to “act immediately” to address the complaints of denial of cashless claims by insurance companies. She also mentioned that more than 9 lakh COVID-related claims for Rs 8,642 crores have been settled by insurance companies.

In the meantime, you can reach out to us and we shall help you plan it out better. We want to help you sort your financial stress one day at a time. Let’s be strong and take care of each other.

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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.

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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.



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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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Should You Buy A House Using EPF?

Buying a house is one of the biggest/most expensive purchases for most of us. 
In very rare situations do home buyers purchase a flat by paying the entire amount upfront? Many lack the funds required to make a purchase even as property prices remain stable or fall.
The need for capital to fund their home makes the home buyers opt for home loans for which lenders seek a 20 percent down payment. Arranging this money can be a tough ask for many. Some even consider withdrawing money from their employee provident fund (EPF) accounts for this downpayment.

Is funding your house using EPF a good idea? Let's discuss it


Basics of EPF and withdrawal rules

For beginners, an employee who has been associated with EPF for at least three years and has at least Rs 20,000 account balance is eligible for this. One can withdraw up to 90% of the balance to buy a home subject to other conditions laid out by authorities.

Since the EPFO is going to pay the society or the developer of the property, such withdrawal of money can be used to pay for the entire house — down payment or home loan EMI. You can also avail the interest payment subsidy on Pradhan Mantri Awas Yojana (PMAY) on the payments made through EPF for home buying. Looking at the benefits, this becomes a ‘go to’ option for many salaried individuals when they want to buy their dream home. 


Does this make sense from your entire financial planning perspective?

EPF helps salaried individuals to accumulate funds while they are working. The corpus is meant for the period when one retires and there is no regular income. Hence, it is not supposed to be withdrawn before its maturity as this could jeopardize your retirement. By spending your money meant for your retirement today on your home you are exposing yourself to the risk of leaving no funds for your retired life. Remember, no one will give you a loan for your retirement. 

EPF is an opportunity to accumulate money for the post-retirement period. You keep contributing a small fraction of your salary to the EPF and your employer matches your contribution. As the salary increases, the contributions do go up. That makes a large corpus in your hand when you retire, provided you do not withdraw it for any other purpose. You let the magic of compounding work for you by investing regularly and consistently in your EPF corpus.

House is a necessity and in the Indian context ‘owned house’ is a social and psychological need for many of us. But short-term thinking’ focussed on immediate gratification must be avoided at any cost. 


How to arrange for the downpayment of your house?

It is better to make a plan for home buying. Start saving money to accumulate the down payment amount over three to five years. If the home prices go up or your investments yield less than expected, you may want to delay the home buying by a year or two. Avail of the home loan after you make the down payment but do not touch your EPF money.


Compare the returns

It is better to compare the cost of funds (rate of a home loan) and the rate of return offered on the EPF before taking the funding decision. The repayment of home loan principal and interest both attract tax benefits. Depending on the tax slab of the individual the cost of a home loan stands reduced to the extent of the tax exemption availed. In most cases, the cost of a home loan is lower than the rate of return receivable on the EPF, which makes the home loan better means to pay for your home.

Wealth Cafe  Advice- Do not break your one goal to achieve another. Especially when it is the retirement goal. Do not break your EPF for home buying, unless you have other means to secure your retirement.

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.



17

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:

  1. 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.
  2. 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. 
  3. 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.
  4. 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.
  5. 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.
  6. 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 !!
  7. 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.

 

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.



8

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.



4

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.



3

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:

  1. Large Cap Mutual Fund (Equity)
  2. Large & Mid-Cap Mutual Fund (Equity) (your ELSS tax saving schemes are generally a Large & Mid Cap Mutual Fund)
  3. Mid Cap Mutual Fund (Equity)
  4. Small-Cap Mutual Fund (Equity)
  5. Thematic Mutual Fund (where you understand specific sectors and have a higher risk-taking appetite)  
  6. Short Term Debt Mutual Fund (For your short term goals)
  7. 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.



1

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.  





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