How Credit Utilisation Ratio Impacts Your Credit Score?

Holding a credit card has much more significance than just being a means of payment. Your credit card transactions and its usage directly impacts your credit utilisation ratio. Before delving deeper into the subject, it's critical to understand - “What is credit utilisation ratio?” 

In simple words, credit utilisation ratio is the sum of outstanding balances of your credit cards divided by the total outstanding of all your credit cards. This means that if your credit card limit is Rs. 1,00,000, which has an outstanding balance of Rs 40,000 then your credit utilisation ratio is 40%. 

Why Credit Utilisation Ratio Matters?

Credit utilisation ratio constitutes 30% of the CIBIL score report, which explains its significance in deciding your credit profile by lenders and financial institutions. High credit utilisation ratio for an extended number of months is a red flag to lenders and can hurt you're borrowing abilities. Even timely monthly payments fail to justify the high credit usage against a credit card and continues to dampen one’s credit score. According to set guidelines, a credit utilisation ratio of 30% and less is seen as an optimum percentage to keep. 

After knowing the threshold, it is only natural to ponder on ways to keep it in line with the number, particularly during those times when credit card spends could surge due to sudden expenses. Here are some handful of ideas that will help you to manage your credit card spending in the best possible way. 

1) Splitting up expenses across multiple credit cards - Plan your expenses wisely to balance the amount across credit cards. It should not happen that one credit card is over utilised while the other remains under utilised. Credit utilisation ratio is calculated both collectively and separately on each of the credit cards. Therefore, if two credit cards have a credit limit of Rs 50,000 each and a total of Rs 25,000 is spent on both cards, then the ratio is well within the limit of 25%. 

2) Making part payments - If splitting up expenses does not lower the credit utilisation ratio then consider making part payments before the billing cycle ends. Part payments will immediately reduce the outstanding balance, which will bring down the ratio as well. However, this will also reduce the free credit period that you are entitled to. 

3) Increasing credit limit - If the above two methods fail to work, then boosting credit card limit could be another way to handle increased credit utilisation ratio. Remember that it will be difficult to get another credit card as high credit utilisation ratio may not make a case for issue of a new credit card. In such a scenario, it will be prudent to ask for an increased limit on one of the credit cards against a valid reason. 

Meanwhile, take time to learn you're monthly spending patterns and cut back on those expenses that  seem to be avoidable. Further, consider dividing expenses among credit and debit cards to lessen the credit score hassle. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Transferring Home Loan? Be Ready For These Hiccups

Any hint of a drop in interest rates prompts home loan borrowers to review their existing debt and transfer it to another lender in a bid to reduce interest outgo on loan. However, the entire process is not at easy as it sounds due to the amount of paperwork and time involved in transferring an existing loan to a new lender. In fact, transferring the loan from one lender to another implies going through the same formalities as applying for a new home loan. 

It is recommended that borrowers should first try to negotiate with their existing lenders to bring the interest rates down in line with the offered rates for new borrowers. But, if there is no point in negotiating then be prepared to transfer it to a new lender. This requires one to be careful of few hurdles that can hit them along the process. 

1. Responsibility of submitting originals lies with borrower - An existing lender will be reluctant to hand over the original property documents to the new lender and rather assigns this responsibility to borrower. It will be the onus of the borrower to collect originals and submit it to the new lender to complete the disbursement.
2. Fee for reduced rates - Few lenders charge a fee to reduce rates on an existing loan and it is best to avoid such lenders for continuing your home loan. In such a scenario, switching lender is the only alternative. 
3. Foreclosure letter skips basic details - A ‘foreclosure letter’ is issued by an existing lender, specifying the amount required to foreclose the loan. However, many times, banks release foreclosure letters that are not clear in terms of interest applicable per day, thereby, delaying the process itself. Also, a foreclosure letter should not be time-bound, i.e., it should not give a time-frame of foreclosing the loan. Borrowers should carefully take note of these points before proceeding to transfer their loan to a new lender. 
4. Letter of confirmation for originals - A lender is obligated to provide a letter of confirmation to the borrower for the original title documents that it holds against a loan. Several new buyers, being unaware of the process, miss to collect this letter in the beginning, which could turn out to be a major roadblock later. 
5. Careless approach - An existing lender can become extremely careless when it comes to co-ordinating the loan transfer process as it translates into a loss of business for them. Therefore, a borrower should actively participate in carrying out the transfer formalities himself in order to save much of the time.  

To avoid these hurdles, it is only prudent for an investor to be clear with the requirement and formalities of transferring a home loan. Better to get a written advice from both current and new lender on their own requirements to steer clear of any verbal confusions later. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Five Mutual Fund Myths That You Should Overcome

Mutual funds, despite a well-regulated way of investing, continues to be engulfed with several myths. It is these misconceptions that prevent potential investors from investing in this asset class. 

Here are some of the common mutual fund myths listed out to empower investor fraternity in overcoming them. 

Image Source - Ognian Mladenov via Flickr 

Myth 1 - Meant for big surpluses

Many individuals believe that investing smaller sums into mutual funds is futile unless they have a sizeable surplus to spare. However, this notion is downright misplaced because mutual funds work as effectively for smaller sums as they do for larger sums. In fact, postponing investments might mean eroding the true value of investment surplus itself. 

Let’s understand, how delaying investments can hurt return potential.

Investment Amount Per Month	Postponing 1 Yr	Postponing 3 Yrs	Postponing 5 Yrs
INR 500	₹ 6,323.64	₹ 21,341.56	₹ 40,185.05
INR 1000	₹ 12,647.29	₹ 42,683.12	₹ 80,370.10
INR 2000	₹ 25,294.57	₹ 85,366.23	₹ 1,60,740.20
INR 5000	₹ 63,236.43	₹ 2,13,415.58	₹ 4,01,850.51

Myth 2 - Expertise 

Investors shy away from mutual funds due to lack of expertise or knowledge about mutual fund offerings. Questions like ‘What if I have chosen a wrong scheme’ or ‘If I will lose money’ limit their exposure to mutual funds. The only way to deal with this myth is to seek advice from a qualified adviser and ask more questions to steer away from doubts. 

Myth 3 - Ratings are the best tool to judge performance

Ratings or rankings of a fund do provide information on a scheme’s historic performance but it does not guarantee sustainability of performance. A top-ranked fund could drop to the bottom if there is a change in fund manager, portfolio holdings or any other key aspect directly related to its performance. Ratings should not form the sole basis of choosing an investment but other factors such as investment goal, fund manager, risk, expense ratio, etc. should also be evaluated.

Myth 4 -SIPs are always better than lump sum

Drive to channelise even smallest of investments into mutual funds through SIP gradually led to a myth that SIPs are superior to lump sum. However, it is not the case always and there are several pros and cons of both modes of investment. SIP investment are susceptible to market losses like lump sum investments, perhaps in a less volatile way. But, this fact alone should not render lump sum as an unworthy mode of investment. Scenarios, where lump sum can be appropriate over SIP, has already been discussed in our previous blog. 

Myth 5 - Mutual Funds are only equity-oriented

It is not uncommon that investors interpret mutual funds synonymous to equity investments. This is the reason why those who have burnt their hands in stocks prefer to stay away from mutual funds as well. However, this is not true as mutual funds offer various schemes including debt and liquid schemes. Mutual funds serve not only as an alternative to equity stocks but also to fixed deposits, savings account and gold. 

If you have been gripped by any of these mutual fund myths then its time to break away from it and start investing.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Shift From Cash To Cashless Transactions With E-Wallets

As cash-driven economy finds itself crippled in the aftermath of demonetisation, it is the digital savvy citizens that continue to attend to their daily chores without spending time standing in serpentine queues outside ATMs and banks. 

While many of the millennials had started shifting to digital transactions already, the demonetisation is expected to speed-up the process. As per the Boston Consulting Group (BCG) report, digital transactions in India surged by 50% per year in 2013, where bill payments and mobile plans occupied the highest share. However, the recent step to discourage cash hoarding will see many Indians transitioning to digitalised economy in many ways. 

Digital Age Solutions

Internet banking, debit and credit cards continue to be a common mode of completing transactions, e-wallet services are growing as another alternative. Now, most of the payment gateways accept e-wallet as a mode of accepting payments. At the same time, a range of services are covered under the e-wallet payments such as mobile bills, insurance premiums, taxi services, grocery bills, etc. 

How e-wallet functions?

A user has to load money into e-wallet in advance to use it later for making various payments. Unlike other payment modes, e-wallet does away with the need of sharing bank details every time you do a transaction as money directly gets deducted from the pre-loaded amount. 

Even payments to offline merchants, who support e-wallet, can be made by scanning the QR code through the phone’s app. In these transactions, you have to enter only the payment amount and the transaction is done in a jiffy. 

How secure are e-wallets?

E-wallets are embedded with an additional security layer as payments made through it does not require sharing of bank or card details with merchants. In this way, you have no worries about losing your bank or credit/debit card details to anybody. 

How to create an e-wallet? 

To access e-wallet services, you can either download the app or visit the service provider’s website, where you can register using your email ID and mobile number. Before start using your e-wallet, you will need to enter your debit, credit or net banking details to fund your e-wallet account. 

There are several third-party e-wallets available in India whereas few banks have also launched similar services. You will need to check the tie-ups of various businesses with an e-wallet service provider to choose best-suited one for yourself.

How e-wallet is beneficial?

An e-wallet not only lets you pay for various services but it also allows you to transfer fund to family and friends by just keying in their phone numbers. You can request money in a similar way too. 

Secondly, e-wallets offer discounts as well as cash backs on certain transactions that automatically gets credited to your e-wallet account, which is a big plus.

Lastly, e-wallets also help you to keep track on your spending irrespective of the size of the spending amount, which otherwise remains unnoticed in cash transactions. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Decoding Demonetisation Impact On Key Asset Classes

Over the last one week, ‘Demonetisation’ has suddenly become the most used word in India. Everyone, right from day labourers to celebrities are not shying away from analysing the impact of this phenomenon as per their own understanding. Everyone has a say on the subject, which in itself, proves the widespread impact of this drive on the general public. 

Before moving ahead on the outcome of demonetisation exercise on various financial assets, it will be relevant to know what exactly is demonetisation. 

“Demonetisation is withdrawal of currency as an official mode of payment.”

Although demonetisation could disproportionately affect the various income groups of India in many ways, the recent one was mainly targeted at unaccounted cash holders. Also, the move was to disrupt fake currency circulation by terror groups. 

Let's take a brief look at the impact of demonetisation across key asset classes. 

1. Equity Market - Demonetisation could have eroded the optimism from equity markets on short-term, but it may not hurt equities over long-run as the market digests the uncertainty triggered by the move. However, some of the sectors are likely to underperform, given their dependency on the unorganised economy. Despite this, the move should not at all deter long-term equity investors, who might come across several buying opportunities in the coming days and months. 
2. Real Estate - Real estate sector, which is notoriously known for high-value cash transactions and involvement of black money in tier II and III cities, is certainly going to take a hit, following the Demonetisation move. This asset class might see a steep correction as many of the investors, who would have planned to reap profits by investing unaccounted cash, would withdraw from the system. However, projects undertaken in Metro cities are not likely to face the heat as this fragment has already shifted to the organized system long back.  The liquidity crunch might haunt the sector for a while, but transparency in the sector is apparent that will benefit legitimate investors in future.Over and above, expected drop in home loan rates following demonetisation is also seen positive for the sector. 
3. Debt Market - The return potential and attractiveness of debt market has only improved following the demonetisation move. Inflation is likely to ease, which will provide room for the Reserve Bank of India to cut policy rates, thereby, leading to higher bond prices. Under the present scenario, debt investors might benefit the most from several positive aspects that come into play for this asset class alongside rate cuts. 
4. Gold - The asset class made the most of the Demonetisation move and is likely to retain its glitter in the upcoming days. The sudden abandoning of high-denomination currency by the government has once again reinforced the public’s faith in the yellow metal. Gold will continue to be among the most preferred investments for Indians, who await more bold steps from the Government during its tenure. 

In a gist, the cessation of currency will have only little impact on digital-savvy investors and they can continue to move ahead with their planning as usual, unfazed by the recent chain of events. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Why Nominations Are Must In Any Financial Transaction?

While most of the financial institutions have made it mandatory for investors to fill in the nomination details, yet it has been the most ignored aspect of investment than anything else. The urge to complete documentation and proceed with investments force investors to simply ignore the need and basic requirement of nomination. 

At the same time, people continue to nominate same person for years without considering the life changes that one goes through such as marriage, becoming a parent or death of existing nominee. Despite being a powerful tool to help transfer of assets, it is seldom used by anyone. 

Understanding Nomination

Nomination is a process of authorizing a person as a nominee by the owner or prime holder of the asset. This authorization is meant to ensure that the asset is duly received by the nominee in the event of the death of the owner or holder of the asset. A nomination simplifies the claim process for the authorized person in case of an unfortunate event caused to the owner. In absence of these details, a legal heir is required to complete lengthy legal formalities even if he/she is the rightful claimant of the wealth. Thus, nomination is the best mode to keep things simple throughout the investment tenure. 

Function of Nomination

It should be noted that a nominee does not necessarily become the owner of the asset. Rather nomination empowers nominee to receive funds from financial institutions or banks as a trustee, after which, a will or Indian Succession Act, decides the lawful distribution of those assets. 

At times huge sums of money remain unclaimed due to the absence of nomination or unawareness of legal heirs about the whereabouts of investments by the deceased owner. This can be understood from the glaring unclaimed amount of Rs 4,426.72 crore as on December 31, 2015, with Life Insurance Corporation of India (LIC) that in itself should be an eyeopener. 

Nomination Does Not Supersede Will

It is important to underline that nomination only facilitates transfer of asset, whereas Will takes precedence over nomination during distribution of assets. Let’s understand the functioning of will and nomination using this example. 

• Case A - Raj nominated his brother Rajeev to receive all of his mutual fund holdings in case of his death. However, Raj also made a Will, where he clearly stated that all of his mutual fund holdings should be distributed equally among his children and wife. In this case, Rajeev will only have the right to receive mutual fund proceeds, which is required to be distributed in accordance with Will. 

• Case B - Raj nominated Rajeev and died without leaving a will. Now, in this case, the assets will be distributed in accordance with the Indian Succession Act. However, if there are no legal heirs of Raj then Rajeev will qualify to retain the assets with himself. 

There is an exception to the rule that nominee under shares and debentures gets the entitlement to the assets, unlike other financial assets. 

Final Takeaway

After knowing the above points, the importance of having a nominee is well understood. After all, it is better to enable legal heirs to have rightful ownership of assets rather than leaving them into years of struggle to claim the same. Lastly, do not forget to review and update nominations wherever required to match it with changed life circumstances, if any. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Are Festival Real Estate Deals Worthy Of Your Pursuit?

With Diwali around the corner, the real estate festive offers are in their full swing. Many real estate developers have put attractive offers on the anvil to charm home buyers. The recent rate cut by the Reserve Bank of India has of course helped in reigniting consumer interest in the real estate. 

Among the freebies offered by the developers, EMI subvention scheme is amassing the highest interest from home buyers. An array of payment options like 10:80:10 or 5:95 or no EMI till possession are rolled out to woo buyers. Apart from these, there are several other catchy offers such as foreign trips, gold and exemption from stamp duty or club charges. While such schemes have generated results for real estate developers in the past, it’s time to evaluate if these schemes are the only criteria for home buyers. 

Market Dynamics

India Ratings and Research recently published a report, highlighting that the real estate inventory is currently equivalent to three years of revenue. Although only a few projects have launched, still the inventory numbers are nothing but eyebrow raising. This means that the market forces is currently inclined towards home buyers as most of the real estate developers are struggling to offload inventories that have been going up for the past few years. Resultantly, prices have eased off, thereby, putting pressure on developers to finish their ongoing projects sooner. 

In view of the given scenario, many real estate experts contend that the stagnancy in the sector will extend for some more time. There has been no remarkable rise in real estate prices so far and the scenario is not likely to change in the coming months. This implies that festive season is not the only time when home buyers can hunt for a deal, rather they will have a reasonable time to decide about their purchase. 

Draw a line between real and superfluous benefits

First and foremost, the home or real estate in question should meet your requirement, only after which anything comes into the picture. Schemes like a gold coin or car or even a foreign trip will work if the piece of real estate really suits your need. Even if offers do matter to you then try choosing the ones that can really provide measurable financial benefit to you. For instance, free car parking, registration fee exemption or waiver of stamp duty translate into quantitative financial benefits.

End-goal

At last, offers or freebies should not alter your end objective behind buying real estate. To make a prudent decision, market scenario (as explained earlier) precedes everything else. In short, the current scenario favours home buyers, who are looking to buy it for themselves. 

But, if the purpose is solely for investment then be mindful as it might mean locking up your capital for an extended period of time. Also, ready-to-move-in projects should be given priority over in-progress projects as delay in completion continues to be a challenge in the sector and can hurt buyers at the end. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Five Smart Options To Deploy Your Tax Refund

Those who have filed their taxes on time would have mostly received their tax refunds by now. With festivals around the corner, it would be only natural that this excess money could either be lying idle in your bank account or be spent away in leisure activities. 

This piece will explore some smart options that could help your money to make a difference by putting tax refund to a better use. 

1. Repay high-interest debt - Tax refund can be effectively used to discard bad debt such as credit card, personal loan or car loan. Repayment of debt should be primarily done on the basis of interest rate, which means that loans with highest interest rate should be repaid first, followed by others. (Sequential order of loan repayment has already been outlined in our earlier blog).
2. Boost you business funds - If debt is not a concern for you at the moment, but it is the new business venture that is occupying your thoughts then tax refund could prove to be a great way to build business funds. It is prudent to divert your tax refund money towards business opportunities. Although such diversions might not be big enough for your business but it will at least lessen the gap by some margin.
3. Big plus for retirement - Apart from repaying debt and business funds, tax refunds can also become an effective tool to bolster your r
   etirement savings. Money received in your account can immediately be transferred to funds that are meant for your retirement. By utilising tax refund towards retirement, you can reach your goal not only sooner, but it will also grow at an incredible pace to leave you with substantial savings than intended.
4. Prepare better for emergencies - It is common that emergency corpus gets used up in fulfilling meagre or urgent things. Those requirements might not be urgent in nature but the ease of accessibility to emergency funds lead to its erosion over a period of time. During such times, income tax refunds could come handy to make good of the shortfall to your emergency corpus. 
5. For an extra mortgage payment - It is possible that your income tax refund could be too meagre to be used towards the afore listed goals. In such a case, it is recommended to pre-pay one or more of your mortgage payments, which will directly bring down your principal outstanding amount. Such small measures, when implemented every year could help bring about a visible decrease in the interest outgo and tenure of your mortgage loan. 

Lastly, do not forget to reward yourself by spending a part of your tax refund towards leisure activities. But take care that you do not overdo it and keep such expenses restricted to a set percentage of your tax refund.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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How You Can Grow Your Bank Balances Bigger By Acting Now?

“Anything in excess is bad”, which is equally true in case of investments, where investors are experiencing information overload, drawing them back to make any decision at all. The biggest example of an inadvertent reaction to such information overload is letting cash sit idle in savings account. (We have already discussed the alternatives to savings and current account in our earlier post.) 

Creating investment awareness is critical, but the question that confronts us is how to fix excessive awareness that more or less works in a similar way as lack of it. Too many investment alternatives hold back even notable professionals from taking a call. At times, bad investment choices made in the past also haunt investors judgement, forcing them to procrastinate investment decisions. 

Be it too much of information, lack of time or impact of the previous decision, it is your own money that is on the losing end due to the unstoppable and irreversible function of inflation. 

If such is the case then it’s high time to come out of this inactivity and make informed decisions. Few pointers that will help you through the process are briefed here. 

1. Time to shun investment inertia - Nothing can be achieved by doing nothing, which means that letting cash sit idle in bank account just because you are not finding time is not going to take you anywhere. Rather than finding time, it is important to ‘make time’ for it and start planning. For this, you can assign an hour out from your weekly leisure time towards impending investment decisions. Set a deadline for yourself and put your surplus funds to work before it’s too late. 
2. Simplifying investment decisions - Beating inflation should be the heart of your investment decision, which implies that you do not have to get into complex financial planning to treat your surplus funds. Reviewing best of the alternatives that have a track record of better performance should be the right choice for you while the comprehensive goal planning can be done at a later stage. 
3. Annual Plan - To avoid investment inactivity during the busier times of the year, it is recommended to get an annual plan in place right at the start of a year. An annual plan will make it easier to divert surplus funds into pre-decided investment avenues. For this, investors can either seek help from a financial advisor or could simply choose the basket of products that will match risk appetite and performance criteria. At the same time, it is important to not let your portfolio be under or over diversified. 
4. Get into action- A plan in hand will allow you to systematically divert funds into chosen products, thereby, eliminating the need of redoing research and choosing products each time you have a surplus. 
5. Hunting down temptations - It is easy to get swayed away by a plethora of new products hitting the market each day while recommendations from friends or relatives might even prompt you to look away from your plan. To avoid such temptations, give time to proposed new product or recommendation to prove itself before impulsively acting on it. 

This line of action will help you to get going without giving in to another information overload trap. As Mark Twain said - “The secret of getting ahead is getting started.”

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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How To Overcome The Temptation of Borrowing From Retirement Corpus?

A survey report collated by HSBC shows that almost 21% of Indians belonging to working population have not yet started saving for their retirement while 44% of Indians have discontinued their retirement savings due to several challenges confronting them. 

The above numbers prove that starting investments for a goal might be difficult but staying focused on a financial goal is even more gruelling. Building retirement corpus is one such goal that can take a hit anytime as people tend to prioritise current needs over future expenses. In view of the vulnerability of the retirement corpus, it is important to form a strategy that will prevent one from raiding their retirement corpus. 

1. Responsible withdrawals - If withdrawal from retirement nest egg seems inevitable then be responsible while doing so. Such withdrawals should be preceded by evaluation of other options such as borrowings or taking a loan. At the same time, withdrawals should be as sparing as possible.
2. Putting back is important  - Once the need is taken care, individuals should proactively act towards restoration of withdrawn amount. Needless to say, restoring retirement corpus is extremely important and should include adding additional amount to match the interest foregone as a result of earlier withdrawals. 
3. Breaking away from Indian mindset - It is important to reiterate that retirement corpus should be the last option for meeting financial needs. However, most of the times, higher education of children or their marriage force parents to fulfil the shortfall using retirement corpus. Ideally, these circumstances should be taken care through sourcing funds from other alternatives such as education loan or personal loan. Given the trend of disappearance of joint families as well as increasing number of young adults staying away from their parents, it is critical to give priority to building retirement corpus over anything else. 
4. Reviewing the need - At times, people are not mindful about withdrawing from their retirement corpus and give in to short-term goals such as offshore vacations, upgraded car or short-term investments in real estate. At this stage, it is necessary to review the motivation or urge of such withdrawals and most of the times, a careful evaluation can help to take a step back. For example - a couple in their 50s might be prompted to buy an upgraded car as a result of improvement in their lifestyle. It will not be an exaggeration to state that a car, which is a depreciating asset, can bring only a short-term happiness that will tend to diminish over time. Moreover, buying a car may mean increased maintenance costs over period of time. Now, if the couple decides to stay invested and retain their existing car then they will be in a better position to maintain their lifestyle for a longer duration post-retirement than otherwise. 
5. Restricting lifestyle improvements- It is a common fact that improved salaries or business incomes can follow a steep surge in lifestyle needs. While a little boost in lifestyle is encouraging,any substantial change should be avoided. This is due to the fact that phases of financial uncertainties can make it difficult to maintain existing lifestyle and force people to borrow from their retirement corpus. For this reason, lifestyle should always be maintained at a level that can sustain even during short duration of financial crisis without depending on retirement corpus. 

Aforementioned points are few of the basic yet vital steps that individuals can adopt to prevent unplanned borrowings from retirement corpus. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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5 Conditions When Lump Sum Investments Can Score Over SIPs

Systematic Investment Plan (SIP) or lump sum is one question that baffles nearly everyone during an investment process. Situations may arise where you have more in hand to invest, but the logical SIP route holds you back from taking any decision. Protection against ill-market timing, power of compounding and other associated benefits with SIP take over the urge of lump sum investment. 

However, one cannot overlook the fact that few investors aren’t as comfortable with SIP as others. Letting the amount sit ideal in a bank account and transferring it systematically into an equity fund through SIP route might involve more time than investing at one go. At the same time, investing lump sum into a liquid fund and switching it into an equity fund does not free up time either. 

Thus, in order to get a better perspective, it's important to review the conditions when lump sum investment can score over SIP. 

1) When it’s for a real long time - SIP generates incredible results over long-term and that does not change a bit for lump sum investments as well. In fact, power of compounding can yield far heftier returns in lump sum than SIP. Let’s take a look at these two scenarios, where a similar investment is broken down into equal monthly investments and lump sum.

SIP	Investment Amount = Rs 5,000 Investment Tenure 20 Years Rate of Return = 12%	₹ 49,46,276.83
Lump Sum	Investment Amount = Rs 12,00,000 Investment Tenure 20 Years Rate of Return = 12%	₹ 1,15,75,551.71

* Rate of return is assumed based on average historical return by mutual funds. 

2) Income flows are erratic - Investors belonging to business or professional background might not receive regular incomes and so SIP might not work for them just as well as they do for salaried individuals. The irregular flows at different timings makes lump sum route as logical option for people with variable incomes. Such individuals can choose to manually invest at one go as and when they have a sizeable corpus in hand rather than committing to SIPs on fixed dates. 

3) Effective for calm and experienced investors - Lump sum investments are not as insulated as SIPs against market volatility. Hence, this route is more appropriate for investors, who do not lose their calm during wide market fluctuations. Also, the method suits investors who are more into active investing and know how to manage their portfolios in response to market momentum. 

4) Goal investing does not go anywhere - Lump sum investment requires equal or in fact higher need of goal planning. It is important that an investor does not lose sight of goal, the absence of which, will make lump sum investing pointless.

5) Active review - Lump sum investment should follow active review and readjustment. If an assigned goal needs more cash infusion than the same needs to be arranged to make good of any shortfall. Similarly, better-than-expected surpluses should also be managed smartly so that the gains earned are not lost to market volatility. 

After having reviewed the above conditions, it can be deduced that lump sum investment investments aren’t as bad as perceived. Investing at one go can be equally rewarding as SIPs when executed properly.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Five Basic To-Do's Before Launching Your Business Using Personal Savings

“It’s almost always harder to raise capital than you thought it would be, and it always takes longer. So plan for that.”  – Richard Harroch, Venture Capitalist and Author

The quote sums it all...

Holding a business idea just for lack of funds might turn into ‘forever.’ Needless to say, it is necessary to put a plan into action to erase those possibilities. But again, it is almost impossible to dodge the whole ‘capital sourcing’ question right away. 

There is a better way to face it, which is simple, ‘Plan It’. Some of the basic yet effective ways mentioned here can help you give a push to kickstart your business and bring it into reality. 

1. Getting rid of debt - The first and foremost key factor to rowing towards a successful entrepreneurship is to paddle off existing debts. Any amount of debt will make it difficult to balance between personal debt obligations and business expenditures. It is extremely important to be debt-free to focus completely towards business planning and execution.
2. One More Corpus To Build -Corpus for emergency, retirement, children's education and marriage are a mandatory course of action for a secured financial life. But, there is one more expenditure that will add up once you decide to launch your business using personal savings. You will need to allocate funds towards personal expenses separately, which will cover personal expenses during the formative months or years of business. Analysing fund requirement against personal expenses should be done comprehensively. 
3. Personal Financial Plan - Launching a business involves some serious planning, which implies that you might not want to ruin your business progress by overlooking your personal finances. One has to be vigilant about the possibility that business needs might pull away focus from personal financial planning that can again be detrimental to both self and business. It is essential to ensure that business capital needs to not compel you to commit personal assets, which are the backbone of your personal finances. 
4. Incorporate Lifestyle Changes - Lifestyle change cannot happen overnight. It takes an incredible amount of self-control, perseverance, and patience to change the way you live in order to live the way you dreamed. The transition demands substantial lifestyle changes, the thought of which, might even be palpitating for some. But, one has to see a bigger picture behind those small unsettling changes, which can become an advantage at a later time. Moreover, saving more on own translates into less dependency on external funding sources such as credit card or personal loan.
5. Make the Most of Your Time- It will be unjustifiable to not underline the significance of time, right from planning to execution. Time, if invested judiciously alongside money, can dramatically play in the success of your business. No matter if you are running your business concurrently with day job or as full-fledged, committing time is important, which otherwise can fail any amount of financial planning.

So, it's time to stop fretting about where to start, but START. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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What Should Come First - Home Loan Repayment Or Investments?

Believe it or not, the big question about making a choice between home loan repayment and investments pop up at one or the other point of time. Increased salaries, revenues, business profits or a windfall income might instantly give rise to this dilemma. And to help you make a decision, it is important to tick-off few aspects first. 

1) Interest earned vs interest saved - So, at one end, you are saving interest on a loan while on the other, you are earning interest on your investments. This makes it essential to analyse, which scenario is working in your favour. 

Sample Case - Krishna has a home loan of Rs 50 Lakh for 25 years, where he is paying interest of 10% annually or Rs 45,434 as EMI. Krishna manages to save Rs 30,000 per month, which can either be used to prepay home loan or make fresh investments.

Scenario I - Krishna decides to invest Rs. 30,000 every month for next 25 years, i.e., equal to tenure of home loan, into a fund that fetches 12% per annum returns.

Scenario II - Krishna prepays home loan and is mortgage free after 12 years of loan tenure itself. He then invests Rs 75,434 per month (Home loan EMI + Surplus) in a fund delivering 12% p.a. returns for remaining period of 13 years of 25 years.

Now, let’s take a look as which scenario worked in Krishna’s favour. 

	SIP/Investment Route	Home Loan Repayment Route
Corpus At The End	₹ 5,63,65,398.79	₹ 2,80,77,217.80

The above illustration proves that Investment route clearly won over home loan repayment option. 

2) Good debt vs bad debt - Needless to say, home loan qualifies as a good debt and so there should not be any haste in settling it down over other bad debts such as car loan or personal loan. While home value appreciates over time, home loan also attracts deduction under Income Tax Act, which should be a basis of taking any decision. 

3) How close are you to Retirement? - If you are just 5 or 10 years away from retirement then prepaying home loan makes sense than investing. This is due to the fact that risk appetite diminishes with age and the equation explained in the above two scenarios reverses. Thus, home loan repayment is far better than investing in a fixed-income or debt fund. 

4) What’s paid is paid - Prepaying home loan means that you lose the right to claim back the paid amount. On the other hand, investments into stocks and mutual funds are easily accessible and can be withdrawn if any unexpected event occurs. In short, sufficient cash flow as a backup can be a big advantage during unforeseen occurrences. 

5) Still confused? Seek financial advisor’s help - While investments take precedence over home loan repayments, yet the decision is dominantly driven by an individual’s circumstances. Taking a call can be daunting at times as it is more than mere number-crunching. If you find yourself in such a situation then it’s only rational to reach out to a financial advisor to help it decipher it for you. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Cross These Five Investment Hurdles

Managing finances is in itself complex, which further takes shape of a mammoth task when investors fail to dedicate undivided attention towards their investments or portfolio,even when such action is sought periodically. While coping with other time demanding matters, investors tend to overlook certain aspects of their investments that could hurt them at a later stage. 

Here’s a brief reiteration of things that investors must keep away from so as to make informed decisions. 

Chasing past performance - Historical returns or past performance has almost become a barometer to judge future performance of a fund or stock. But, there are more factors in play than just past performance. It is imprudent to ignore market cycles or the economic environment as other decisive aspects that impact a fund or stock’s performance and should be considered before making any decision. For instance, change of fund manager under a mutual fund scheme can drastically impact a fund’s performance going forth, which nullifies the significance of how the fund performed during previous years under old fund manager. 

Submerged in emotions - An outperforming stock or fund investment can instantly leave an indelible impression on an investor’s mind. Resultantly, it becomes hard for investors to let go off those investments easily even when they start languishing. Coming out of an unworthy investment is equally important as initiating or beginning a new investment. 

Directionless Investing - Just like pushing a wall means working against oneself, investments lacking purpose might take one nowhere.  No matter how disciplined or judicious those investments are, they might not produce results without a goal. Assigning a time or objective against an investment is necessary. For example, an investment of Rs 5 Lakh every year for next 10 years in a short-term fund become inadequate to meet the need of funding child’s higher education. Reason being that the investment was abruptly made in a debt instrument due to lack of vision as to what purpose it will solve. Tagging investments to goals is the only systematic way of maximising wealth. 

Working against power of compounding - Most investors are unaware that time adds value to money at a far greater pace than imagined. To appreciate this fact, it is important to know how  monthly savings convert into corpus over years. Here’s is a case scenario, where three different individuals start investing at an age of 25, 30 and 35 respectively.

	A	B	C
Monthly Investment	20000	30000	40000
Investment Tenure	35	30	25
Expected Rate of Return	10	10	10
Total Investment	84 Lakh	1.08 Crore	1.20 Crore
Corpus At The End	₹ 7,57,77,048.67	₹ 6,77,96,804.16	₹ 5,31,50,583.63

Clearly, investment started at an early age fetches higher corpus than those started during later years. Even Rs 10,000 additional investment in remaining two scenarios failed to match what a five-year difference has brought about in the first case. 

Difficulty finding time - Lastly, juggling between work and personal life often creates time deficit and throws financial planning off track. Irregularity in reviewing portfolio or making investments then becomes a hurdle in accomplishing set objective. To deal with this situation, it is important to organise time or at least dedicate few hours a month to ensure that money is working in one’s favour. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Like us at https://www.facebook.com/Inverika/