Is Your Chartered Account are Your Financial Planner?

As we interact with a lot of investors, we find that some investors,  have this habit of referring their Chartered Accountants (CA) for every financial decision including investments. We are not saying that this is completely a wrong practice, but one must also check that, is your Chartered Accountant so efficient that he can advice you on your investments or financial planning matters? By efficiency we are in no way referring to his qualification, but yes we are referring to his area of expertise.

We have seen that Chartered Accountants being given god-status in some households. 

Once I was with an aged investor and he was looking for tax efficient returns without any exposure to equity as this was an investment for around 6 months. The investor was into highest slab bracket hence I recommended him Fixed Maturity Plan from a reputed mutual fund house. But investor insisted that I should explain the product to his Chartered Accountant. Reluctantly (because of my past experiences) I agreed.The first question that was asked by the CA was pretty basic- “is this an open-ended product or a close-ended product”. If an expert asks a question like this we all know the fate. He insisted investor to go for a Bank FD saying that the mutual funds are not safe and banks are. So invest in a PSU bank. And then he went for the final kill and suggested that since equity market is in bull phase, you should take 2-3 large cap stocks and sit tight. You will make the same money in one month that this FMP would give.

Although this Chartered Accountant had no vested interest and was working in favor of his client but his knowledge limitations ruined investors portfolio.

Chartered Accountant (CA) is not a Financial Advisor

Consider these following points before you refer to your Chartered Accountant (CA) for any of your investments decision or Financial Planning:

§  CA is an expert in accounting and tax practices. He is not an expert on assets like Equity and Debt. Also he is not an expert on tracking or researching factors which are must for any investment decisions you take. These factors can be macro like European Crisis or micro like inflation. He may have view on these as a spectator but he is in no way qualified to analyze these facts to form an investment advice.

§  In case of individual investor, a CAs job ceases after he calculates the amount of tax that investor needs to pay. Investments to save this tax fall under the purview of your Investment Advisor or your Financial Planner. He will help you invest a suitable tax saving instrument taking care of your overall portfolio, asset allocation and other needs.

§  CA has no role in Financial Planning. He is not equipped to assist you in your goal planning or risk assessment. Also since he is not an asset expert he cannot help you in assessing your future finances and portfolio. CAs engaged into advising on investment just does it for the sake of not losing their clients or for some monetary gains. Beware as his advice will never be comprehensive.

§  Your Financial Planner is expected to have detailed knowledge about economy and individual assets. He can also deal with tax related matters if you don’t have too complicated financial life. Also as he is associated with you since the early stages of investments, he has a broad picture of your individual requirements. He is aware of your family needs and you get personalized service.

§  In some cases CAs act like product sellers for your insurance needs or tax savings bonds. This is not a correct practice in fact the Chartered Accountants are prohibited by their practice guidelines to act as commission agents. It is prudent that you take service of professional who is suited for the job. For all financial planning related aspects, your Financial Planner is most suited.

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Roles of different Financial Professionals

If we look at the roles or the expertise, Chartered Accountants are not Financial Planners or even Financial Advisors.

§  Chartered Accountants (CA) work in fields of business and finance, including audit, taxation, financial and general management. (Refer Diagram)

§  Financial Advisor is a professional who renders financial services including investment advice, which may include pension planning, advice on life insurance and other insurances such as income protection insurance, critical illness insurance etc., and advice on mortgages.

§  Certified Financial Planner (CFP) is a practicing professional who helps people deal with various personal financial issues through proper planning, which includes: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).

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So next time if you suffer prolonged common cold it is better to show this to a Doctor who is expert in Internal Medicine and not to a Cardiologist, even though the cardiologist is your friend and provides free advice over telephone. For god sake stop worshiping the wrong deity.

Must share your experience with Chartered Accountants for financial advice.

Vcare Investment Services Pvt ltd

201 Sai Sadan 76/78 Modi Street, 

Fort, Mumbai 400001

022-66548814/15

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Wht Debt Fund?

Wht Debt Fund?

Even today a conservative Indian investor continues to confuse mutual funds with equity. It is precisely because of this lack of understanding that they miss on the superior risk adjusted returns, easy liquidity and tax benefits that fixed income funds have to offer. Today 72% of the aggregate AUM of the mutual fund industry in India is invested in debt funds, thus marking the prominent position that fixed income funds hold in the asset management space.

While most retail investors do have a fair idea of the conventional financial instruments such as Bank FD’s, G-Sec, company NCD’s, they seem to be unaware of the fact that fixed income funds in India in fact invest in various combinations of these instruments only. 

The portfolio exposure(as of Nov’12) at the industry level shows that of the entire fixed income AUM ~10% is invested in G-sec, 53% is exposed to corporate securities and ~36% is invested in Bank FD’s. It is thus, important to understand that fixed income funds are nothing but a conduit to invest in such securities, only in a more efficient manner. Not only that, the investor through these funds gets the opportunity to choose from various schemes depending on his risk appetite and the desired tenor. He can custom make for himself a healthy salad by choosing from liquid fund, liquid plus funds, Short term income funds, GILT funds, income funds etc.

But is variety a good enough reason to shed the conventional thrift habits and shift to savvy fixed income funds? Certainly not, but who says that’s all. Fixed income funds have much more to their merit.

Sound investment philosophy germinates from prudent portfolio diversification, and that is exactly what debt funds do. The idea is to invest in the right securities at the right time and in the right proportion to garner the highest return every time. Such a task requires expertise and skill which a retail investor may not possess due to his distance from the intricacies of the market.

While a typical Indian retail investor is always more keen to invest in bank FD’s, what usually skips his mind is the threat posed by volatility in the inflation trajectory, which is inevitable in a developing economy. So when you lock in your money for a fixed tenure at a certain rate with a set anticipated trajectory of inflation that allows you to earn positive real return on an FD, the math completely falls apart if inflation starts to misbehave and eats into your returns. It is here that the flexibility and agility of the fixed income funds play a pivotal role in securing better real returns through prompt portfolio allocation.

Very often investors start comparing pre-tax current return on FD’s with the past performance of various debt schemes and jump to the conclusion that FD’s are better. But that’s incorrect. What they should technically compare is the post tax return on FD in the same time span for which they are looking at the return on debt schemes. And once they do start comparing apples with apples, they’ll see how tax adjusted returns from debt funds are superior to those offered by bank FD’s.

Apart from these, the ease of liquidity that fixed income funds offer vis-à-vis bank FD’s and the like cannot be over looked. If you withdraw your money before maturity from an FD, you are liable to a monetary penalty, but, if you have invested with a debt fund you can redeem your units anytime you like without losing the gain accrued to you till that date! The same applies in case of pumping in small savings. Imagine opening an FD for Rs 2000-3000 every month!!

It is then difficult to justify as to why the retail investor participation in fixed income funds in India so low, even when the institutional investors are in fact making good returns from the same. The usual answer is the fee that they are charged. But is that a reasonable justification? You are ready to pay a doctor his fee for your diagnosis, even when you have the option if using the tried and tested nani maa ke nuskhe, then why this discrimination in case of financial services? The most nominal fee that the fund houses charge is for the expert guidance that they provide as the care taker of your money while bearing the huge onus of delivering superior returns time and again.

I think it’s time the retail investors, for their very own benefit ,move on to fixed income funds and take advantage of professional fund management expertise at low costs, which is already benefitting their institutional counterparts.

Vcare Investment Services Pvt ltd

201 Sai Sadan 76/78 Modi Street, 

Fort, Mumbai 400001

022-66548814/15

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Retire With Ease Even if....

                                                  Retire With Ease Even if....

.... Your income is low

Chinese philosopher Lao-tzu said the journey of thousand miles begins with a single step. start investing Rs 5,000 per month and increase the amount by 10 per cent every year. If your investment earns 12 percent annually, in 32 years you will have Rs 5.15 Crore.

.....You can’t  find time

Automate your investments. Give the mandate for an ECS to invest in mutual fund or other saving instrument. No need to write cheques or fill up forms every time you want to invest. This will ensure you continue to save and your retirement fund continue to grow.

......You need a big sum

Don’d underestimate the power of compounding. Regular and disciplined investment can yield good results over the long term.A monthly investment of Rs 30,000 in an option that earn 12 per cent annually will grow to Rs 3 Crore in 20 Years.

.......You have started late

If you don’t have too many years to retire, maximize your saving by cutting down on discretionary expenses. Don’t go for high risk investment just to make up for the lost time. instead, consider postponing retirement by 2-3 years.

......You can’t monitor

You don’t have to. There are option that reset asset allocation as the investor grows older and his risk appetite comes down. So, even if you don’t know how much to invest in equities at 30 or how much to shift in debt at55, your fund will.

.... you don’t know how

Go to an Exoer for advice. A Financial Planner will tell you how and where to invest to reach your retirement target as well as other financial goals comfortably. Sure, you have to pay him,but you will realize that your is money well spent

Vcare Investment Services Pvt ltd

201 Sai Sadan 76/78 Modi Street, 

Fort, Mumbai 400001

022-66548814/15

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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

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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

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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