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Tennessee Williams once famously said: “Ignorance of mortality is a comfort.” While ignorance is indeed bliss, it’s also a comfort that people with loved ones and dependents, cannot afford to have. In today’s post, we’re going to look at the importance of estate planning, as well as the benefits of designating heirs for your assets in case of your untimely demise.

While the word “estate” might mislead readers to think this is only for large landowners, estate planning is for anyone who has assets that they would like to leave behind for loved ones or dependents. The main goal here is to make sure that all your assets are distributed as per your wishes, while also minimizing taxation on whatever you leave behind.

Additionally, estate planning isn’t just about distributing wealth and you can also delegate responsibilities like in the case where you have children, you can delegate a legal guardian to care for them in case fate doesn’t permit you to. Protecting what you leave behind from taxations by the government is another important aspect of estate planning and it is best to get professional money management services for this.

There are 4 critical components of a good estate plan that we are listing below:

    1) A will that clearly identifies:

    a. The heirs to your assets
    b. Your children’s guardian
    c. The executor of your will

    2) A power of attorney that will enable:

    a. Someone to make financial decisions on your behalf
    b. Someone to pay bills and make legal decisions on your behalf
    
    3)   A medical power of attorney to:

    a. Enable your doctor to make medical decisions for you in case you are unable to

    4)   A Trust to:

    a. Minimize estate taxes
    b. Control how your assets are distributed

In conclusion, as Surya Das put it so well. “If we accept and internalize the fact of our own mortality, then, by definition, we have to deal with the essential questions of how we live and spend our allotted time.” This means not only making peace with the fact that one day we have to leave this world, but more importantly, ensuring that all our affairs are in order before we go. This not only helps ease the situation for your loved ones who are coping with grief and loss but also prevents ugly legal battles caused by the lack of a proper estate plan.

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Greetings,

We hope you liked our post on maintaining a balance between health and wealth management and we’ve put it here in case you missed it!

Steve Jobs was famously quoted saying “No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet, death is the destination we all share. No one has ever escaped it.”


That being said, there’s a certain comfort in the knowledge that no matter what happens, we not only have the means to pay for our medical treatment if required but also the means to provide for our families in the case of any eventuality. If life insurance & health insurance don’t feature on your list of priorities when it comes to building an investment portfolio, you’re not building it on a very strong foundation.


In fact, life and health insurance are the very foundation that the financial pyramid, (explained in our post on building a wealth management portfolio), is built on. This is because safeguarding what you already own, Even if It’s just your own health is more important than creating new wealth. The new disease, in particular, has made it more critical than ever to be well prepared for any unforeseen circumstances.


Life Insurance  

Life insurance comes with a death benefit which is usually in the form of a payment or payments to your next of kin.

As an example, if you take two people with similar wealth portfolios, say 5 crore INR, one with a life insurance cover of 10 crores and the other without any life insurance. In the case of their eventuality, the first person will leave his family with 15 crores, while the second, even though he had a similar portfolio, will leave his family with just the 5 crores. This 5 crores represents all the wealth he has left behind and will be soon spent by the family on regular expenses, kids education, marriage and other miscellaneous expenses.


In the case of family with 10 crores of life insurance. They will find it lot easier to manage their expenses and will not have to dig into savings, withdraw from investment portfolio or sell any property to continue the same standard of living. As seen in the above example, in addition to a death benefit, a life insurance policy effectively protects your investment portfolio, property, and any other assets you may leave behind. A revisit to our post on human life value will give our readers a quick recap on how to calculate the right amount of life insurance for yourself and your family.


Health Insurance

Health insurance is in place to ensure you’re financially covered in case you need any kind of medical attention. This is equally if not more important than a death benefit, especially with the situation in the world today where hospitals are working at their peak capacity causing medical care to cost a lot more.

Additionally, medical expenses don’t really end with treatment at a hospital and post-treatment consultation, medical check-ups, diagnostic tests, and medicines can often cost more than the actual treatment itself. This is why it’s imperative to understand your health insurance plans and the coverage that they offer for different types of ailments, medical procedures, and post-operative care.

There are also fixed-benefit health insurance plans that pay a fixed amount on the contraction of any diseases that feature on a predetermined list of diseases that you are most likely to contract. While these plans may cost a higher premium, a lot of the time, especially where medical care is concerned, time is of the essence. These plans typically pay cash upfront on the submission of a first diagnosis report, without wasting time asking for details.

In conclusion, life insurance and health insurance are both essential aspects of a safety net meant to protect us and our families from the potential financial stress that could come from unforeseen circumstances. Health insurance also helps pay for preventive care which is critical to avoid a more serious condition later on. Lastly, while planning finances, life & health insurance need to be looked at as priorities, as well as necessities, and depending on one’s living situation, one can also opt for a family plan to cover the whole family in one policy.


    “Insurance is just risk management. We transfer the risk from families who can’t afford it, to insurance companies who can. That’s all it is.” — Tony Garden


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Greetings,

In our previous post, we covered Life and Health Insurance, In this post we’re going to look at Systematic Transfer Plans and the many associated benefits.

Since the tag line that goes with all mutual funds is that they are subject to market risk, financial experts recommend Systematic Transfer Plans (STP) to spread investments out over a longer period of time in order to mitigate risk as much as possible. As opposed to investing a lump sum amount in one go, you invest a fixed amount periodically in order to reduce the propensity to market fluctuations.

Now in case you’re thinking that this sounds like Systematic Investment Plans, STPs are actually different. How they work is that your entire investment is first parked in a liquid or liquid plus funds where it generate steady returns at prevailing interest rates, while a fixed amount is earmarked for periodic investment in prospective schemes under the same fund house. There are three main categories of STPs:

Fixed STPs

In the case of a fixed systematic transfer plan, the total amount to be transferred from one mutual fund to another remains constant and you can choose between annual and periodic investments. Annual investments can be 1 year, 2-year, and 3-year investments, while periodic investments are weekly, fortnightly, and monthly. While daily investment is also available when the market is open from Monday to Friday, this isn’t advisable.

A good example of a fixed STP is if you had 5 crore rupees to invest & invested in 5 different STPs at 1 crore each and set them all to fortnightly investment (15 days ). What you would effectively have is ( 5*48) investments, or 196 investments, spread across 2 years. This effectively does two things, gives you the benefit of rupee cost averaging so instead of buying at one particular NAV, you buy at an average, hence reducing the associated market risk. Secondly, your corpus that’s parked in a liquid or liquid plus funds are still earning interest and compounding.

Flexible STPs

With flexible STPs, the amount and periodicity aren’t fixed and are decided upon as and when the need arises. These funds are typically actively managed and investments are made based on current market volatility as well as a number of calculated predictions.

Capital STPs

Here only the profit or capital gain on a particular fund is then transferred to another fund that shows more promise or potential for growth. An important point to note, with regard to all three types of STPs that we’ve covered is that funds can only be transferred from a mutual fund scheme to another scheme of the same mutual fund house and not across different fund houses.

The power of averages

With regard to market risk in particular, in an ideal world, we would buy when the market is low and sell when the market is high. If anyone could correctly predict that, however, there wouldn’t be any need for financial experts or even mutual funds for that matter. While the reality is that the market is and always will be unpredictable, risk can be mitigated by investing wisely while also maintaining caution and discipline. Please feel free to contact us to know more about STPs and which one would best suit your investment profile.

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Greetings,

Education, as we all know, is most vital asset in the modern world. And when it is from prestigious institutions it widens our horizons more. But accessing it can be difficult for quite a lot of students due to finance. This is where education loans can help.

Indian banks provide wide range of education loans. Loans for studying in India, abroad, for higher education in IITs, IIMs, NITs, etc (with special benefits) and loans even for vocational courses.

 Eligible Courses

Graduation, Post-graduation courses approved by UGC/ AICTE/ IMC/CIMA (Chartered Institute of Management Accountants) - London, CPA(Certified Public Accountant) in USA, etc.

Teacher Training/ Nursing courses approved by Central government or the State government.

Courses run by Industrial Training Institutes (ITIs), Polytechnics, training partners affiliated to National Skill Development Corporation(NSDC)/ Sector Skill Councils, State Skill Mission, State Skill Corporation.

Certificate/Diploma/Degree issued by such organisation as per National Skill Qualification Framework (NSQF) are eligible for a Skilling Loan.

 Expenses Covered

 Fees payable to college/school/hostel.

 Examination/ Library/ Laboratory fees.

 Purchase of books/ Equipment/ Instruments/ Uniforms/ computers.

 Caution deposit/ Building Fund/ Refundable deposit.

 Travel expenses for studies abroad.

 Expenses to cover study tours, project work, etc.

 Repayments

 Usually Loan to be repaid in 15 years.

 Repayment commence one year after after completion of course.

 Accumulated simple interest during the moratorium period and course period is added to principle and repayment is fixed in EMI ( Equated Monthly Instalments) .

 If full interest is paid before the start of repayment , EMI is fixed based on principle amount only.

 Vocational courses Loans have repayment period between 3 to 7 years depending on the amount. ( Maximum loan amount under Skill courses is generally 1.5 Lacs).

 Salient Feature of loans designed for studying in India and abroad

 Schemes like Student Education loan (SBI), PNB Saraswati, Baroda Gyan, IBA Model Education loan (Canara Bank), PNB Udaan (for studies in abroad),Baroda Scholar ( for study abroad) , AXIS Prime Domestic, Axis Prime Abroad, Skill Loan Schemes, etc provide loan for studies in India and abroad. There are many common features among these schemes with slight modifications.

 Loan Amount

 For studies in India - Medical Course upto 30 Lacs, Other courses upto 10 Lacs and higher amount is considered from case to case basis with maximum amount upto 50 Lacs

 For Studies in Abroad - Upto Rs. 7.5 lacs, Higher loan amount is considered from case to cases basis while some banks have upper limit of 1.5 crore, few have no upper limits. This amount depends on the type of course and also the ranking of institute.

 More loan amount can be provided if the student secures admission in prestigious institutions like IIT, IIMs, NITs.

 Rs 50,000 to Rs 1.5 Lacs for vocational or Skill courses.

 Security

 Upto Rs 7.5 lacs : Only parent/ Guardian as co-borrower, No collateral Security or third party guarantee

 Above Rs 7.5 lacs : Parent/Guardian as co-borrower and tangible collateral security.

 Meritorious students can avail unsecured loans (i.e. collateral free) upto Rs 40 Lacs from almost any bank though with slightly different interest rates.

 No collateral or third party guarantee will be taken for Vocational or Skills Loans. However parent/Guardian required as joint borrower.

 Money margin

 It is the amount paid by the borrower while the rest of the amount is paid by the bank. Margins can be FD/ Scholarships/ initial fee paid to the institute.

 Upto 4 lacs - Nil ( i.e. bank will finance total expenses)

 Above 4 lacs - 5% for studies in India and 15% for studies in abroad.

 100 percent financing for students securing admission in premier institutes in India or abroad.

 ICICI bank charges no margin upto Rs 20 Lacs for non-premier institutes as well.

 Nil money margin for Vocational or Skill Loans.

 Interest Rates

 Interests rates are set according to RLLR ( Repo Linked Lending Rate) , MCLR (Marginal Cost of funds based lending Rate) . These reference rates are subject to change upon which Rate of Interest is calculated. Every bank has therefore slightly different interest rates because these metrics are internal to banks.

 State bank of India bank

 Upto 7.5 lacs - Effective Rate of Interest is 8.65 % . 0.5% concession in interest for girl students.

 Above 7.5 lacs  and  Above 20 Lacs and upto 1.5 Cr (for studies in abroad) - Effective Rate of Interest is 8.65 % . 0.5% concession in interest for girl students. 0.5% concession for students availing of SBI Rinn Raksha or any other existing life policy assigned in favour of SBI bank.

 List AA institutes - Effective ROI - 6.85% to 6.95%

 List A institutes - Effective ROI - 7% to 7.15%

 List B institute - Effective ROI - 7.15% to 7.65%

 List C institute - Effective ROI - 7.15% to 8.15%

 Skill Loan Scheme : Upto Rs 1.5 Lacs - Effective ROI - 8.15% with no further concession.

 Punjab National Bank

 For studies in Indian and Abroad - Upto 7.5 lacs - RLLR  - 6.8% ( w.e.f. 1.09.2020) + 2.00%

                                               Above 7.5 lacs - RLLR + 2.75%

 Loans irrespective of amount where 100% tangible collateral security is available - RLLR + 2%

 For PNB employees where employee is either a co-borrower or guarantor - RLLR + 0.25%

 Institutes like IITs, IIMs, XLRI Jamshedpur and NITs - Upto 7.5 Lacs- RLLR + 0.65%

                                                                                      Above 7.5 Lacs - RLLR + 0.15%

 Institutes such as IIM Ahmedabad, IIM Bengaluru, IIM Kolkata - Above 7.5 Lacs - RLLR + 0.10%

 PNB Kaushal - Vocational Education and Training - RLLR + 1.50%

 Bank of Baroda

 For studies in India

 Upto 7.5 lacs : BRLLR (Baroda Repo Linked Rate) - 6.75%(w.e.f. 15/03/2021) + 1.85%

 Above 7.5 Lacs : BRLLR + 1.6%

 0.5% concession in rate of interest to loans for girl students not in premier institute.

 For studies In abroad

 In Premier Institute : BLLR + 1.5%

 In non-premier institute : BLLR + 2.15%

 Premier Institutions for studies in India

 List AA/ A institutions : BLLR - 6.75%

 List B : Upto 7.5 Lacs : BRLLR + 1.10%

            Above 7.5 Lacs : BRLLR + 0.85%

 List C : Upto 7.5 Lacs : BRLLR + 1.85%

            Above 7.5 Lacs : BRLLR + 1.60%

 Baroda Skill Loan Scheme - BRLLR + 1.50%

  Canara Bank

 Upto 7.5 Lacs - MCLR ( 7.35%) + 2%

 Above 7.5 Lacs - MCLR + 1.5%

 0.5% concession in ROI ( Rate of Interest) to girl students.

 0.5% concession for timely repayment of interest during moratorium.

 Selected IIMs/IITs/NITs/IISc/ISB (Hyderabad and Mohali) and other reputed institutes - 7.35%

 IBA Skill Loan Scheme - MCLR + 1.50%

 AXIS Bank

 Upto 4 Lacs  - Effective ROI - 15.20%

 Loan greater than 4 Lacs and upto 7.5 Lacs - Effective ROI - 14.7%

 Loan greater than 7.5 Lacs - Effective ROI - 13.7 %

 ICICI Bank

 Secured Loan - Starting at 10.50%

 Unsecured Loan - Starting at 10.75%

 Interest rates will vary depending on the institutes and courses.

 HDFC Bank

 For studies in India

 Min APR (Annual percentage rate which includes additional costs or fees) - 9.4%

 Max APR - 13.34%

 Preferential rate of interest for prestigious institutions..

 For Studies in Abroad

 Effective Rate of Interest - 8.64%

 Interest Subsidy Schemes

 Central Scheme of Interest Subsidy for education loans - For Economically weaker sections to pursue technical/professional courses.

 Padho Pradesh Scheme of Interest Subsidy for education loans - For students of minority communities to study abroad.

 Dr. Ambedkar Central Sector Scheme of Interest Subsidy - For OBCs and economically backward classes to pursue education abroad.

 Central Sector Interest Subsidy Scheme (CSIS) - For providing full interest subsidy during the moratorium period on modern education loans without any collateral security and. third party guarantee, for pursuing technical/professional courses in India.

 Vidya Lakshmi (Vidya lakshmi)

 This is an online portal designed in collaboration with different government ministry where students can view, apply and track the education loans from different banks. The portal links students to National Scholarship Portal also. Students can avail information on loans offered by 34 banks and can apply to three different banks with single form. Applying involves less paper work and it takes almost 15 days for the loan to be processed.

 While applying for education loans, one should clearly asks bank about the hidden costs such as processing charges, documentation charges, penalties in case EMI is not deposited on due dates. Also banks provide insurances specifically in case of unsecured loans in which premium amount is added to loan amount. Lastly, any kind of loan is a liability, it needs to be repaid, so one should think thoroughly about whether their college and courses will provide them good platform to land into a good job so that repayment is a stress free routine.

 Useful links

 Know your College - knowyourcollege-gov.in

 Ranking of higher Education in India - nirfindia.org/Home

 National Scholarship Portal - scholarships.gov.in

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Greetings,

We hope you liked our previous post on Education loans in India. In this article we will briefly look at "The Delay Cost Of Investing".

“Lots of people wait around "for the right time". People don't know that there is no such thing as a right time. Time is never right nor wrong. The only negative factor of time is that you can lose it and the only positive factor of time is that you can seize it.”

― C. Joy Bell

Similarly in the investment world, time is as important as money. In fact, time is actually more valuable than money since you can get back lost money but there is no getting back lost time. This is why we need to understand that sitting back and doing nothing has a cost attached to it too and that’s what we’re going to look at in this post.

Delaying your investments because you are waiting for the market to rise or fall is a “fool’s errand.” This is because no one can accurately predict the future and all you’re doing by waiting is eroding your returns in the long run. This is because every minute and every hour that you fail to put your money to work for you, you are losing out on wealth that would otherwise be generating right now.

Let’s use an example to explain this concept of delay cost a bit further. Take an example of 3 different people, who start investing at 3 different ages, say 25, 30, and 35, with a monthly investment of 25000 and a modest annual return of 10%. By the time the first person retires at the age of 60, his investment would be worth more than 100 crores while the second person’s investment would be worth about 60 crores and the person who started last would have around 30 crores. 

That’s a huge difference and not one that you would expect from a 5-year delay. This is because time is the key factor to investing wisely and the more time you have, the longer your investments have to grow. Nelson Mandela was quoted stating “We must use time wisely and forever realize that the time is always ripe to do right.” In our case, doing right refers to doing right with our money and our investments in order to accumulate wealth.

If you look at the third person in our example, they started late but saved 30 crores in 25 years which is not bad. Compare that to the ten year-delay that cost more than 70 crores in delay cost and you realize that he lost more money in ten years than he made in 25. That’s the message we’re trying to get through with this post that it’s more expensive to sit around and do nothing than it is to get up and start investing.

In conclusion, they say “it’s never too late to correct a mistake” but what they don’t tell you and what no one talks about the cost associated with correcting it. Most people invest and save for retirement so they can live a comfortable life, don’t lower the standard of your future by indecisiveness, start investing now.

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Everyone wants to be a great investor. And Why not? Investing is challenging, best way to have financial freedom and thereby live life the way we want to live. But market study has suggested that an average investor loses more money than he gains while doing investing or stock trading. Why does this happen? Does it have to do with technical knowledge like fundamental analysis, stochastic analysis, ability to reach charts diligently, knowledge of useful patterns, etc.

Well! Expert investors say quite contrary to this. According to them, an average investor remains average because he/she lacks the temperament, the character and above all lack the way successful investors think. It all boils down to psychology.

Behavioral psychologists have pointed many limitations which leads to error in our decision making process. Whenever we make decisions we have plenty of information available. But that information contains noise as well. Eliminating noise is quite important while doing investing. Noise include price fluctuations which makes it difficult to perceive what’s genuinely driving market forward. Noise traders are usually reactionary who base their decisions on trending news circulating in social media. They have tendency to think that every reaction in a trend is the beginning of a new trend. Always look for long-term results and avoid short-term gains.

Investing is speculative but a good investor tries to move away from mere guessing. He gives time and energy in understanding the company in which he decides to invest his hard earned money. Understanding company’s products, industry, customers, employees, management is his foremost task.

Loss aversion is a kind of behavior wherein investor prefer to avoid loss than making profit of same amount. Psychological impact of a loss is twice that of same amount of profit. This makes investors to hold on to loss making commodity even when there are better alternatives - thereby making more losses. Practicing detachment is crucial in coping with loss aversion behaviour.

Hindsight bias is an occurrence that makes investors believe that they accurately predicted an event after it happened. This leads to overconfidence which in turn allow investors to be in illusion that they can predict further events. Once we know the outcome, it is easier to create a plausible explanation for that event. We selectively remembers only the information which suits our conclusions and perceptions. We see things as we want to see and create a story which supports our arguments.

Good investors think about what other people are thinking because then they are able to know herd mentality. This allows them to avoid asset bubbles, panic buying and panic selling.

Herd psychology helped us to survive physically in our evolutionary journey but today it has more dangers than benefits, specifically in finance and investment. Now, our natural tendency is to move with crowd, with culture, and doing something contrary to it can bring fear of being lonely and fear of missing out (FOMO). Average investor succumbs to these fears to avoid subconscious pain.

“To follow the good principles and not let fear, greed and hope interfere with your trading is tough. You are swimming upstream against human nature.” - Richard Dennis

Often impatience and frustration leads an average investor to sell just because that share or stock is showing little progress. He is bored of slow progress. Other times, he clings to bad investments out of stubbornness. A seasoned investor understands the difference between greed and making profits. Greed let him act only when the bull market has passed entirely.

Sticking to simple routines appears easy but more than often mind falls for complicated. Not that these methodologies are not useful but the idea is to find simple routine which works for you and repeating it. Complication overwhelms the mind. Simple is not easy or boring.

“We could post our trading rules on the front page of the Wall Street Journal, and still people would not be able to make money from them” - Quote from an expert Investor

Expert investors will say this happens because of fear. Fear of being wrong, Fear of missing out, Fear of losing money, Fear of leaving money on the table. Constructively using mistakes and losses builds up emotional resilience which is the best bet for being a successful investor. Even good traders are only 50% correct in their decisions. Market cannot be predicted. Accept this fact as an investor. Embrace losses. No one can be fearless but the concept is to not let stimulus of fear override the rationality and intuition.

Charlie D’s counter intuitive advice - “The time you know you have become a good trader is that first day you were able to win by holding and adding to win positions. There are many people that have traded for a long time and who have never added to a winner.”

Rather than taking half-profits, 1% goes more deeper. ‘I am winning, So i am reducing my stake’ -Using this logic, normal investor tries to avoid subconscious pain. But such a decision is based on fear of not losing. Creative investor welcomes pain and disturbances through continuous feedback rather than settling permanently in a mediocre mindset.

Financial marker doesn’t work like a super-market. Bargaining is good when you are shopping in the super-market but bad mindset for gaining profits in financial market. Financial market is uncertain. Be ready to see unexpected in this business. As an investor, you also cannot predict the market heights, so it is better to not think in terms of boundaries. Example of this is bitcoin. It had such a tremendous rally and downfall of over 50 percent in recent times.

Let’s sum this up with key points.

Consistency and sustained focus

Be creative

Learn from mentors and great investors

Emotional endurance

Not settling down, always working to improve the game

Understanding mind as a whole.

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