Skip to main content

Investment Planning - From Me To You

Any investment planning must guard against the unforeseen, particularly when it pertains to your better half. Take stock of the must-do list



JOHN Lennon, one of the founding members of The Beatles, once noted in his album, Double Fantasy, that life is what happens to you while you’re busy making other plans. Perhaps, Lennon wouldn’t have given a second thought to what he said. But, life certainly did. Some years later, he was shot dead by Mark David Chapman, for whom Lennon had autographed a copy of Double Fantasy earlier that same night. Lennon has left a treasure of melodies for his admirers but some of us aren’t that lucky. Any eventuality, may not only affect your family emotionally but financially as well. Specially, for your spouse, who can be in dire straits if you haven’t planned for such a situation. Here’s a low down on what to keep in mind while building a financial reserve for your better half.



TILL THERE WAS YOU



Financial planners hold the view that before you make any plan for investments, you should ensure appropriate risk management, which includes not only life insurance and health insurance but household and accidental disability insurance as well. But when it comes to your spouse, you’ve to start with some broad classifications such as is the spouse working, existing assets portfolio and ownership structure, intelligence quotient (IQ), emotional quotient (EQ) and age and financial literacy. Experts believe that the question you should ask is, can you live without your spouse’s income? Accordingly, you must leave an amount needed for living expenses and critical financial goals such as child education and marriage.



NOT A SECOND TIME



You may have pondered over planning your portfolio, but remember that an ideal allocation for your spouse reserve is decided on factors such as lifestyle, risk appetite and requirement on retirement (if your spouse is working). There cannot be a standard formula for investments as it varies from person to person and it’s better if decided by a qualified financial planner. Take an example of a single earner, aged around 35 years, with a monthly income of Rs 50,000. Now, this sole earner needs immediate cover of Rs 1 crore. Reason: if in case of an early death, the spouse needs around the same amount, setting aside personal expenses. So, Rs 1 crore, if invested in any debt fund giving a yield of 8%, will give around Rs 66,000 per month. While the spouse can spend around Rs 45,000-50,000 per month for personal expenses, the rest could be invested to counter inflation in future. Hence, this person should cover himself and his family with adequate health cover and disability cover for himself.



A quick review of your insurance policy should be done first. Make sure you have adequate insurance coverage to make up for the loss of income. Instead of taking one big policy, it is better to have insurance policies maturing at different points of time.



If you’re young, you can look to lock in the investment in less liquid investment. And as you grow, you can start liquidating them and investing in liquid assets. It is important to note that insurance should be ideally kept separate from investments and the core investment should never be influenced by considerations of tax planning.



WILL IT, WILL YOU



Making a Will is an important task in your life. You should make a Will, which protects the interests of your spouse till she survives and should be well defined. It’s also pertinent that the spouse should be well informed regarding your Will, otherwise litigation and other problems can occur. Ideally you must share all information about the Will with the spouse. However, exceptions can be considered in cases of below average EQ and financial literacy. In such cases, you must exercise utmost foresight to devise mechanisms for efficient execution of the Will without the spouse being shortchanged.



If your spouse is working, the reserves can be common but they should ride on multiple objective driven vehicles similar to an SPV (special purpose vehicle). Experts feel that while you may build a common reserve from your incomes, it should be divided across SPVs that will help you achieve different objectives of your life. Cautions: You may have a common reserve but contribution of both should be identifiable and it should not be used for creating personal assets.



Financial planners feel that the purpose of such a reserve can span across objectives such as retirement/ pension, child’s education, healthcare and travel. It is, however, recommended that you should form a separate fund for each of these objectives.



The financial plan must be reviewed periodically to have the correct evaluation for timely adjustments in portfolio diversification and asset allocation. For instance, as you retire, your regular expenses should reduce by around 20% but other expenses increase such as travelling and hobbies. Financial planners say that you should not take major financial decisions in the wake of a loss. Put the lump sum amount aside for a while, preferably in a liquid fund or savings or fixed deposit account for three months. Don’t feel obligated to do something with it right away. After all, it takes time to fill that emotional gap.

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...

What are Tax savings Bank Fixed Deposits?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   These are a special type of bank fixed deposits, of five-year tenure, which allow you to have tax benefits for investments of up to Rs 1 lakh per person per financial year. Investments in these FDs give tax benefits under 80C of the Income Tax act. These are not very liquid investments because the money is locked-in for five years. One also has the option to continue the FD for another five years after the lock-in ends. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax ...

Dynamic Bond Funds

Invest Mutual Funds Online Download Mutual Fund Application Forms Apart from liquidity and returns, tax efficiency is another factor which should be taken into account for such investments. Today, while you're getting decent, predictable returns from bank fixed deposits, they, along with FMPs, can be ruled out as options because of the lack of interim liquidity. Hence, the only other option that you have is a dynamic bond fund. While investments in dynamic bond funds can be a compromise in terms of returns, they are extremely liquid and more tax efficient.   Some of the dynamic bond funds that you can invest in are: UTI Bond Fund, Birla Sun Life Dynamic Bond Fund Templeton India Income Fund ------------------------------------- Invest Mutual Funds Online Transact Mutual Fund Online   Download Mutual Fund Application Forms from all AMCs Download Mutual Fund Application Forms   Best Performing Mutual ...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now