Power Of Love, Power Of Compounding

Power Of Love, Power Of Compounding

It's a lovely story read it carefully...... One of the lesson about life that one should not miss...

Monica (Age 28 Years) married Hitesh (Age 30 Years) in 1982. At the end of the wedding party, Monica's mother gave her a newly opened bank saving passbook with Rs.1000 deposit amount.

Mother: 'Monica, take this passbook. Keep it as a record of your marriage life.

When there's something happy and memorable happened in your new life, put some money in. Write down 

what it's about next to the line.

The more memorable the event is, the more money you can put in. I've done the first one for you today. Do the others with Hitesh. When you look back after years, you can know how much happiness you've had.'

Monica shared this with Hitesh when getting home. They both thought it was a great idea and were anxious to know when the second deposit can be made.

This was what they did after certain time:

- 7 Feb: Rs.100, first birthday celebration for Hitesh after marriage

- 1 Mar: Rs.300, salary raise for Monica

- 20 Mar: Rs.200, vacation trip to Bali

- 15 Apr: Rs.2000, Monica got pregnant

- 1 Jun: Rs.1000, Hitesh got promoted

..... and so on...

However, after years, they started fighting and arguing for trivial things. They didn't talk much. They regretted that they had married the most nasty people in the world.... no more love...Kind of typical nowadays, huh?

One day Monica talked to her Mother:-'Mom, we can't stand it anymore. We agree to divorce. I can't imagine how I decided to marry this guy!!!'

Mother: 'Sure, girl, that's no big deal. Just do whatever you want if you really can't stand it. But before that, do one thing first. Remember the saving passbook I gave you on your wedding day? Take out all money & spend it first. You shouldn't keep any record of such a poor marriage.'

Monica thought it was true. So she went to the bank, waiting at the queue and planning to cancel the account.

While she was waiting, she took a look at the passbook record. She looked, and looked, and looked. Then the memory of all the previous joy and happiness just came up her mind. Her eyes were then filled with tears.

She left and went home.

When she was home, she handed the passbook to Hitesh, asked him to spend the money before getting divorce.

The next day, Hitesh gave the passbook back to Monica. She found a new deposit of Rs.5000. And a line next to the record: 'This is the day I notice how much I've loved you thru out all these years. How much happiness you've brought me.'

They hugged and cried, putting the passbook back to the safe.

Do you know how much .  they had saved when they retired

Its Rs 15,17,896/-

This is Power Love, that Compounded.

I believe the money did not matter any more after they had gone thru all the good years in their life.

"When you fall, in any way, Don't see the place where you fell, Instead see the place from where you slipped.

“Life is about correcting mistakes."

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The Sandwich generation- are you one of them?

  The Sandwich generation- are you one of them?

Sandwich generation is a financial planning term for an individual with financial dependents on both sides of his family i.e. his/her parents & children. We are seeing a lot of individuals in India today in this situation. Changing demographics & a rising middle class give rise to this scenario. On one side parents are retired & are fully or partially financially dependent on the middle-aged son while on the other hand are the children who obviously are dependent on the parent. The situation is similar to a sandwich & thus the name!

One of the main reasons this situation has risen recently is due to lack of  Retirement planning in earlier generations

With large joint families, retirement planning was actually not a big concern but with families having one or two kids, this situation becomes critical. Where earlier several children would stay together & take care of parents, now only one child does it. If you are one of the people in the sandwich generation, financial planning is extremely important for you. A few basic guidelines would ensure that things are smooth for you.

Keeping a good contingency reserve. The importance of this cannot be underestimated. With financial dependents around you, loss of income for a short while can also cause a lot of stress. You need to keep aside 3-6 months of household expenses, dependent expenses & EMI’s. This fund should be kept only liquid instruments like savings bank, short-term Fixed Deposits, Liquid mutual funds, etc.

Medical insurance a must for all members. Medical insurance ensures that in case of any medical contingency, you don’t need to break your assets to pay off medical bills. With so many family members the risk is higher. You need to ensure all have atleast a minimum cover for their age. For children this can be atleast Rs 1 lac, for you & your spouse Rs 2 lacs & for your parents the higher the amount you can afford to pay for the better. 

Even the Government of India understands the importance of this & has given tax benefits for the Premium paid. However if any of the members cannot be insured for any reason, you need to increase your contingency reserve to account for any unforeseen medical contingencies. This is true especially in case of very senior citizens.

With several financial dependents, life insurance is a must for the bread-winner. Ensure you get the right coverage. A term plan is the best way to get the same. A personal accident policy can be bought for the bread-winner. This ensures that in case of loss of income due to an accident, the family does not suffer. Buying critical illness policies for all members is also a good idea.

Your parents may also have assets. Ensure that they have their nominations in place so that transfer of assets is smoothly done. Advise them to make a will so that there is no problem in transfer of assets when they are no more.

One of the advantages of being in the sandwich generation is of having your parents pass on their wisdom & teachings to your children.

Though there is no immediate financial benefits in that, but the same has long term financial rewards. Encourage your children to listen to their grandparents. They have seen all phases of life & this experience if passed on to your children ensures they are wiser in making choices in life. Also do Remember that if you & your spouse are working, your parents are helping you take care of your kids. Making your parents their financial guardians in case of your untimely demise is one point you can keep in mind.

Tax-planning is another advantage. If certain assets like property, fixed deposits, etc are owned by your parents, then the income accrued from it is taxed in their name. Thus your tax liability does not increase. With high interest rates on Fixed deposits currently it is a good idea for your parents to invest in them. Also for senior citizens the interest rates offered are higher.

Do remember that the most important thing at the end of the day is having your loved ones around you. Gradually as society is moving towards nuclear families you are one of the lucky few who have your parents guiding you & your children along

Vcare Investment Services Pvt ltd

201 Sai Sadan 76/78 Modi Street, 

Fort, Mumbai 400001

022-66548814/15

www.vcareinvests.com

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What Caused Liquid Fund NAV to Drop on 16th July 2013.?

      
                     What Caused Liquid Fund NAV to Drop on 16th July 2013.?

Liquid fund NAVs do not drop, since their primary source of return is accrued interest. What happened on July 16th?

RBI decided to make the depreciating rupee scarce, with the objective of making speculation costly. RBI surprised the markets by increasing the bank rate by 2%-from 8.25% to 10.25% after market hours on 15th July, 2013. The NAV for liquid funds as a category dropped across the board, due to this sharp increase in overnight rates.

If a liquid fund earns around 7% p.a that translates into 0.019% every day (7% divided by 365). If there were no expenses or mark to market losses, the appreciation in daily NAV would be equal to this accrual of interest. If there was no default, why did this NAV drop? An increase in interest rates means existing bonds will lose value on a mark-to-market basis.

To estimate the mark-to-market loss from this unexpected rise in interest rates, we can use the fund’s duration. For every 1% rise in interest rate, the NAV of the fund would drop to the extent of the modified duration. If the modified duration of the fund was 0.1, a 1% rise in interest rate, means the NAV would drop by 0.1% (0.1 times 1).

Consider this example:

ICICI Prudential Liquid fund

Data taken from factsheet dated 30 June, 2013.

*RBI changed bank rate from 8.25% to 10.25%, hence impact assumed to be 2%.

#Data taken from FE Analytics

The daily returns are usually made up of two components – accrual less expenses. If there was no market risk, the returns from this fund should be 7.74% (8.24% - 0.50%). Since the NAV is calculated on a daily basis, the interest is accrued to the NAV every day. This would be 7.74% / 365 = 0.0212%.

The mark-to-market hit happened since the RBI changed the interest rates by 2%. Given that the modified duration of the scheme was 0.096, the impact on the NAV should be negative 0.192% (2% X 0.096)

Thus, the net return from the fund for that one day should have been 0.02121% - 0.0192% = - 0.1705%. The actual drop in the NAV was -0.17%.

It is easy to see that the impact of the same decision on various liquid funds would have been a function of the following:

Yield of the fund (funds with higher yields would have been better cushioned than those with lower yields)
Expense ratio of the fund (investors in funds with lower expense ratio would have been better off than those with higher expense ratio)

MTM risk as measured by modified duration (funds with higher modified duration would have lost more than those with lower modified duration.


Liquid funds have a very small duration, or low mark-to-market risk. But the change in interest rates (2%) was too high, leaving them with a high impact. Across the category the NAV dropped by 50p to 12p in a single day.

What are the implications?

Corporate treasuries and banks that would have typically put in redemptions, assuming that NAV would be on accrual basis, would have actually lost. They would have expected a higher NAV, but got a lower NAV since funds had adjusted the NAV downwards for a mark-to-market loss. This would have helped prevent a repeat of 2008.

Investors who came in before the event for a short term, would have lost, since the interest income they earned was about 0.02p a day, while they suffered a loss of 17-23p in a single day. This was due to a completely unforeseen event, and therefore not a cause for panic.

Investors in the fund, who do not need the money immediately, might be better off staying put. A loss of 20p can be recovered by a fund earning 2p a day, in a matter of 10 days.

Investors who came in after the crisis, would have got a good price, since the NAV was depressed by a MTM loss, with no actual damage or default on the portfolio. If there is a low probability of another such harsh event, they may be marginally better off.

Enjoy BIG Basket OF Fruits.

Enjoy a big basket of fruits

We eat to live and some of us live to eat. But we all eat to get the best of nutrition, taste and good health. We focus on having a wholesome diet that includes all food groups in moderation to ensure we are always in the best of health.

As we all know, fruits are extremely important when it comes to maintaining our health and we take great care in choosing and buying the right kind of fruit that best serves our nutritional needs. We follow instructions about not eating fruits after eating a full meal or ensuring they are seasonal and best in quality etc.

Now, consider your financial investments to be like your daily diet. You will need to incorporate various investment portfolios in line with your financial or nutritional needs to have a healthy financial diet best suited to your future financial health. But in addition to this diet, you will need fruits as well to make that diet more wholesome and complete and in case of your financial diet, this where just like fruits, you should consider investing in mutual funds.

Mutual Funds are like fruits and they form an important part of your financial diet. Just like fruits, they add to your financial nutrition and help you maintain a healthy outlook for the future. But most importantly, just like fruits, they offer you variety and choice in line with what you need at this current time, while also bearing in mind what your entire family needs as well.

Say you wanted to buy some mangoes this season, but no one else in your family liked mangoes. If you were clear that you wanted only mangoes and nothing else, that is what you would buy. However, if your son prefers chickoos while your daughter only eats strawberries. Your wife wants bananas, while your parents, suffering from diabetes want fruits that were not so sweets. You will then have to spend considerable time and money to choose different fruits or probably buy an assorted basket which may also include some fruits no one eats.

But what if you had the choice to tailor make your fruit basket? This is what a mutual fund is - a basket that selects and holds these financial fruits, as per your needs and those of your family in one single place at the same time, best suited for all of you. Mutual funds are a way to buy a variety of fruits (a whole bunch of stocks bundled together) rather than just mangoes (i.e., one individual stock).

While currently, mutual funds offer three varieties of fruits - Equity, Debt and Gold, they offer combinations that work at ensuring the best value in terms of being Equity (for those with the need for high risk or high sugar), Balanced (for those who want fruits that are medium in risk and return) or Debt (for those who suffer from risk diabetes and need no extra sugar). You can choose an assortment containing all three with different combinations or go with one that contains them together in desired proportions. And while, it may cost you a little more for the convenience and packaging, in the long run, the fees incurred are nominal for the choice and nutrition provided. Consider the fact that there are more than 40 mutual products available today that offer you various combinations to suit your financial needs.

Whether you are an HNI or a small investor, you can afford to have a diverse portfolio to be financially healthy at a low cost. You get exposure to several stocks through one single mutual fund, whereas otherwise you would have to buy several stocks to get the same returns. Add to that that every mutual fund fruit basket, comes packaged by a nutritionist or a fund manager who has the experience in ensuring that the basket offers you best value for money, health and nutritional returns at wholesale rates.

Remember that no food diet is complete without fruits and that mutual funds help offer that extra nutrition to your financial diet. So go ahead and ask your financial planner to help you put together your mutual fund fruit basket so that you then enjoy the fruits of your financial independence while being stress free about your financial health.

Why Financial Planning?

             Financial Planning.... Your Road to Financial Freedom  

 

There is not a single one of us who can take life for granted. 

There are numerous uncertainties that surround us. Moreover each one of us would like to see fulfillment of our aspirations in our lifespan. There are so many things that one would like to achieve at various stages of their lives, such as buying a new car, purchasing a new house, saving for a good education of your children , annual vacations and of course ensuring a comfortable retirement. 

It would be an understatement to say that for the fulfillment of these aspirations, one needs to build a suitable corpus or accumulate appropriate wealth.

So what is stopping us from achieving these goals or creating a corpus to fulfill these dreams ? Why are we always confused, doubtful and disturb our 

peace of mind ?

There are various answers to this. Today, with each passing day the financial markets and understanding its products have become increasingly complex for an individual.  Add to it the ever rising inflation, the inability of traditional saving sources to beat inflation, increased living expenses,  spiraling health costs, unable to create a sufficient corpus  prior to retirement,  the fear of being dependent on your children and living as per their whims and fancies

 With this kind of prevalent scenario, the concept of Financial Planning becomes inevitable. 

This Planning is a critical exercise in attaining long term financial security.

It is a road map to help you achieve your life’s goals. It helps you to answer certain basic questions regarding your current financial situation, where you want to get to, what are the implications of the same and what is the best strategy that will take you there. It is the process of meeting your life’s goals through proper management of your finances.

The 5 main components of Financial Planning are :

1)    Cash Flow / Budgeting

2)    Investment Planning.

3)    Retirement Planning / Financial Goals achievement.

4)    Insurance and Risk Management.

5)    Personal Tax Planning.

We are equipped with qualified Certified Financial Planners who will chart out a road map of your personal finances in an unbiased manner and help you achieve your Financial goals for a ‘ Financially sound and independent Life ‘.

Vcare Investment Services Pvt ltd 

022-66548814/15

www.vcareinvests.com

Impact on Recent RBI Measure On Debt Market.

What impact will the recent RBI measures have on debt markets? (A note issued by Mirae Asset Global Investments says short term funds with the duration of 1.5 to 2 years should perform better than longer term debt funds on risk return scale) In a move to check the currency's volatility, the Reserve Bank of India has decided to ·         Lower rupee liquidity in the system by capping the liquidity adjustment facility at (LAF) Rs 75,000 crore from 17th July, 2013. ·         The marginal standing facility (MSF) rate has been raised 200 bps to 10.25%. ·         RBI has also decided to conduct open-market sales of government securities worth Rs 12,000 crore on July 18 which will further suck rupee liquidity out of the system. These policy measures amount to a de facto tightening of monetary policy. Coming in a period of sub-trend growth, the RBI has made its intentions clear – exchange rate stability precedes growth as a policy objective. 15-Jul-13 16-Jul-13 3 Month CP 8.44 10.43 1 Year CP 8.86 10.39 3 Month CD 8.02 9.70 1 Year CD 8.32 10.28 10 Year G-Sec 7.56 8.10 Source: Bloomberg, 16 July, 2013 There has been a sharp spike in the debt yields today. Most of the instruments have seen spike of 100-200 bps in the short duration. Debt Market Outlook o   The steps taken will not only squeeze INR liquidity from the banking system, but it will also make borrowing cost higher. We expect rates to harden in response and anticipate a bear flattening of the yield curve. o   The overall outlook for the longer term debt is not so positive. The OMO sale of the RBI is indicator that possibility of bond purchases has reduced drastically. In absence of triggers like rate cuts and OMOs the longer term yields will more higher from here. o   The shorter term yields are expected to more along with the systemic liquidity, we expect the yields on 3 to 6 months papers to get realigned at 9 % levels in near future. o   In this view the short term funds with the duration of 1.5 to 2 years should perform better than longer term debt funds on risk return scale. o   Given all these facts we rule out any possibility of rate cuts in first half of the fiscal

Retire From Work, Not From Life

                             Retire From Work, Not From Life

  

Saagar is a 20 year old guy who has just entered the corporate world by joining a MNC company. As part of the induction process Saagar has to attend an investment awareness session on tax planning. At this age thinking about tax planning, investments and retirement planning is the last thing on Saagar’s mind as he has just started earning.

To most of us retirement is going for vacations, spending time with grand children, playing golf, visit to pilgrimage places like Haridwar or to some it may mean relaxing on a beach with nothing on mind etc. This is the rosy part of it. But the big question we need to ask ourselves is whether we have made enough provisions to enjoy that kind of lifestyle post retirement?

What lot of us fail to realise is that retirement has a dark side also. Retirement along with it brings no income phase, rising cost of living (inflation) and soaring health care costs. Does this scenario leave you worried? Don’t worry there is help at hand. Little bit of prudent and disciplined financial planning can ensure that you can leave aside your worries and enjoy retirement playing golf, a sport which is believed to be meant only for the higher class.

Retirement planning helps a person maintain the same standard of living that he was enjoying before retirement. Even though the person himself stops working, the corpus accumulated by him in his pre-retirement years continues to work for him and earns decent returns to sustain his expenses during his retirement years

Now Lets Understand Concept Of Early Investments For Your Retirenment.

The Following Chart illustrate Two Investments Programme With Annual Investment Of Rs 20,000  One Individual Start At Age 22 and Quite Investing At age Of 30 and Other Start Investing At Age 30.

Age	Early Investment	Age	Late Investment
22	20000	22	0
23	20000	23	0
24	20000	24	0
25	20000	25	0
26	20000	26	0
27	20000	27	0
28	20000	28	0
29	20000	29	0
30	20000	30	0
31	0	31	20000
32	0	32	20000
33	0	33	20000
34	0	34	20000
35	0	35	20000
36	0	36	20000
37	0	37	20000
38	0	38	20000
39	0	39	20000
40	0	40	20000
41	0	41	20000
42	0	42	20000
43	0	43	20000
44	0	44	20000
45	0	45	20000
46	0	46	20000
47	0	47	20000
48	0	48	20000
49	0	49	20000
50	0	50	20000
51	0	51	20000
52	0	52	20000
53	0	53	20000
54	0	54	20000
55	0	55	20000
56	0	56	20000
57	0	57	20000
58	0	58	20000
59	0	59	20000
60	0	60	20000
61	0	61	20000
62	0	62	20000
63	0	63	20000
64	0	64	20000
65	0	65	20000
Total Invested	180000		700000
Ammount Avilable At Age 65	1,56,02,980		86,33,269

So If You Start Saving Early, You Accumulate More Even While Investing Less , Investing Only For 8 Years Where as Who Keep Delaying Investing , Has to Pay more.

The Moral Of this is Whatever Amount You Invest, But Investing Early Makes Dramatic Difference. The Sooner You Invest , Longer Your Money is allowed to Grow at compounded rate.