How To Undo Unwise Financial Decisions?

Irrational financial choices or decisions taken in haste are common happenings in everyone’s life. There could be several reasons that can drive an individual towards imprudent choices, including lack of awareness about an investment alternative or blindly following conventional approach with savings. Whatever may be the reason, the only coherent step forward is to identify those mistakes and fix them at the earliest. 

Here’s a list of few common financial mistakes that people make along with appropriate fixes for them. 

1) Withdrawing from EPF Corpus - EPF becomes centre of focus every time an individual changes job. An individual almost plans everything to do with their EPF except using it for the purpose that fits it, i.e. retirement. More often than not, EPF credited in one’s bank account evaporates towards mindless objectives that can prove be disastrous in later years. 

Corrective Action - To prevent such a mistake, its better to transfer PF account under new employer. Utmost care should be taken to distance oneself from the need of withdrawing EPF at any cost. An individual should have contingency plan in place to rule out the possibility of EPF withdrawal during emergencies. 

2) Conventional Investing- When it comes to choosing between higher returns and lower risks, people tend to prefer lower risks as a response to fear of losing hard-earned money. Majority of Indians park their savings in fixed deposits, but fail to realize that inflation is fast depleting the value of their funds due to poor returns fixed deposits fetch. Apart from inflation, there are more disadvantages attached with fixed deposits. Firstly, except for tax-saving fixed deposits, interest earned from any fixed-deposit is not exempt under Section 80C while the maturity amount is also taxed. Hence, investors are losing both in terms of tax-benefit and returns. 

Corrective Action- Investors should take informed decisions before investing into any product.  Alternative options such as mutual funds and stocks exist that can help beat inflation and seek higher returns. 

3) Missing fun quotient - It is not surprising to see that many of us rush to save a lot within a short-term without setting aside sum for fun or entertainment. Resultantly, such a strategy backfires when emotions reign in and lead to unnecessary spending. 

Corrective Action - It is very important to allocate a portion of savings towards fun budget, such as shopping, movies or eating out. Such a provision can prove to be a big motivator for one to stay disciplined and not lose focus from savings. 

4) Life Insurance for children - Many parents end up buying life insurance for their children to help secure their children’s education and future. But, these policies hardly solve the end-objective. In first place, premium charged for these policies are steep compared to returns. Secondly, these policies are highly incompetent in beating the effects of inflation over progressive years. 

Corrective Action - It is better to exit such traditional policies at the earliest and invest the amount in alternative avenues such as mutual fund or stocks. 

5) Peer pressure - New car bought by your neighbour or an extravagant holiday trip by your relative can generate extreme competitiveness. These emotions can often force individuals to deviate from their plan and plunge into regretful spending. 

Corrective Action - Peer pressure can be overwhelming, which requires periodic evaluation of present income and limitations. Feeling of competitiveness can be suppressed if an individual carefully provisions for binge spending once or twice a year. 

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.

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Inflation, Its Impact And Investments Alternatives That Outpace It

After a muted phase, consumer inflation is beginning to stir up again. According to official reports, consumer inflation surged to 6.07% in July, stemming from escalated food prices. According to economists, the number is not likely to tone down anytime sooner. 

The Bitter Truth

On the backdrop of this information, it is imperative to review the impact of this rising number on investments. At the same time, there is one more aspect that can not go without closer evaluation, which is the fact that middle class and upper middle class income groups witness higher inflation than what is reported in Consumer Price Index (CPI). The composition of CPI is such that rise of prices across certain components is not correctly reflected in CPI and thus, the number fails to factor in the real burden on middle class and higher levels. 

This implies that investments made based on assumption of 6% inflation might not fetch the same corpus as intended at the end of the term. 

Below table shows corpus that will accumulate at the end of specified terms after taking different inflation rates. To keep understanding simplified, lump sum investment of Rs 1 lakh at the rate of 12% is used for calculations.

Corpus At The End	Inflation  6%	Inflation  7%	Inflation  8%
5 Yrs	1,31,692	1,25,655	1,19,942
10 Yrs	1,73,430	1,57,885	1,43,860
15 Yrs	2,28,395	1,98,387	1,72,550
20 Yrs	3,00,775	2,49,280	2,06,960
25 Yrs	3,96,100	3,13,225	2,48,230
30 Yrs	5,21,632	3,93,575	2,97,735

The above illustration evidences that an incorrect inflation assumption can jeopardise the end-objective of the investment itself. For instance, expected corpus of Rs 50 lakh at the end of 15 years might not become a reality if inflation considered is conservative. This calls for a focussed approach and rebalancing of portfolio both in terms of expected inflation and rate of return. 

Investment Alternatives

In case of shortfall in corpus, an individual is either forced to reduce the consumption or increase savings to beat the impact of inflation. Apart from this, investors can also adopt smart strategy of shifting their funds from low yielding instruments to high yielding instruments while taking care of the time element. Investments meant for long-term should definitely be shifted from conservative investments to equity-based products. 

Here’s a glimpse of investment alternatives that aim to outpace inflation over long-term. 

Investment Alternative	Returns  (per annum)	Beat Inflation	Risk	Appropriate Time Horizon
Large Cap Equity Funds	10%-12%	Yes	Moderate - High	Long-term  (Above 5 Yrs)
Mid Cap Equity Funds	12%-15%	Yes	HIgh	Long-Term  ( 7-10 Yrs)
Balanced Funds	10%-12%	Yes	Moderate	Mid-Term  (Upto 5Yrs)
Bond Funds	9%-10%	Slightly	Low - Moderate	Mid- Short Term Upto 3 Yrs
Liquid Funds	8%	Slightly	Low Risk	Short-Term  (Upto 1 Year)
Gold	6%-7%	No	Moderate - Low	Not Recommended
Bank Deposits	8%	No	No Risk	Not Recommended
Savings Account	4%	No	No Risk	Not Recommended
PPF	8.1%%	Slightly	No Risk	Not Appropriate For Long-Term

Final Word

The above table explains the alternatives that are available to an investor. Rather than letting inflation snatch away value of your hard-earned money, it’s better to invest wisely and adjust your portfolio to keep returns higher than inflation.

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.

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Decoding GST - How Things Can Change From April 1?

Rajya Sabha’s Monsoon session saw the passage of Goods and Services Tax (GST) bill last week, which appeared to be a landmark development in tax reforms. However, there were split opinions over the bill with some saying that it will benefit the consumers at large and other news segments highlighting the downside that it will have on services.

The bill, which has received clearance from Lok Sabha as well is likely to be rolled out starting April 1, 2017. In light of recent developments, it is crucial to understand the key aspects of this bill and to be clear as how it will impact common man. 

What is GST?

GST is aimed at implementing comprehensive tax on manufacture and sale of goods and services across India. The new tax regime, when come into force, will replace the existing taxes that are levied at several stages by the central and state government. Thus, the new system endeavours to eliminate duplication of taxes. 

How Things Will Change?

In order to clarify how things will change after implementation of GST, here is an example explained for non GST and post-GST tax scenario.

Non-GST Scenario		GST Scenario
Raw Materials Purchased Incl Taxes	Rs 900 + Rs 100 (Tax) Rs 1,000	Raw Materials Purchased Incl Taxes	Rs 900 + Rs 100 (Tax) Rs 1,000
Cost To Manufacturer	Rs 1,000	Cost To Manufacturer	Rs 1,000
Value Addition	Rs 200	Value Addition	Rs 200
Gross Value For Manufacturer	Rs 1,200	Gross Value For Manufacturer	Rs 1,200
Tax Applicable @10%	Rs 120	Tax Applicable @10% - Tax Already Paid (Rs 100)	Rs 120- Rs 100 Rs 20
Cost To Wholesaler	Rs 1,320	Cost To Wholesaler	Rs 1,220
Wholesaler Profit Added	Rs 200	Wholesaler Profit Added	Rs 200
Gross Value for Wholesaler	Rs 1,520	Gross Value for Wholesaler	Rs 1,400
Tax Applicable @10%	Rs 152	Tax Applicable @10% - Tax Already Paid (Rs 20)	Rs 140- Rs 20 Rs 120
Cost To Retailer	Rs 1,672	Cost To Retailer	Rs 1,520
Retailer Profit Added	Rs 200	Retailer Profit Added	Rs 200
Gross Value for Retailer	Rs 1,872	Gross Value for Retailer	Rs 1,720
Tax Applicable @10%	Rs 187	Tax Applicable @10% - Tax Already Paid (Rs 120)	Rs 52
Cost To Customer	Rs 2,059	Cost To Customer	Rs 1,772

The above illustration satisfactory proves how consumers will benefit post implementation of GST. GST bill will enable companies to set off taxes paid at various stages during the entire supply chain. 

Final Take

It is to be noted that GST will reduce tax burden on consumers, but at the same time it will bring broader goods and services under its ambit. It is estimated that goods entailing higher tax rate will see their prices going down after GST, while services that are taxed at lower rate, are likely to become dearer. Since price structure is an important element, therefore, it is difficult to predict the final impact as of now. 

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/

Five Things To Do While Building Retirement Corpus

‘A Smooth Sail’ is what everyone wants for retirement. Many people go on saving endlessly and accumulating assets just to ensure they have enough during their ‘silver’ years. While saving is certainly the first stepping stone towards building a retirement kitty, the process does not end there. Amassing retirement corpus involves figuring out near-to-accurate corpus requirement and executing an investment plan that makes money work harder than oneself. 

To ensure that existing lifestyle remains undisturbed by old-year challenges, it is recommended to follow below mentioned basic principals for building a retirement corpus. 

1) Know The Number - No matter how dismaying it seems to do the math, there is no getting away from it. It is likely that procrastinating this calculation is only widening the gap between your actual and real retirement needs. 

    Having Trouble Doing The Calculation? Here’s A Quick Help

• Current Yearly Expenses X Inflation X Number of Years to Retirement = Future Yearly Expenses

• Future Expenses X Post Retirement Years = Retirement Corpus* Discounted by Expected Interest Rate

• Many online calculators are available to calculate the retirement corpus online

2) Make Money Work - Once the retirement corpus is known, it’s time to channelise savings into appropriate vehicles that can fetch better returns. Instead of trying to fill the bridge by overthinking about savings, it will be wise to shift existing investments from conventional products to high-return oriented products. Moreover, regular monthly investments can also be started into equity-based products to make the most of it. 

Retirement Planning
	Fixed/Recurring Deposit 5 Yrs & Above	Equity & Mutual Funds   5 Yrs & Above
Rate Of Return	6.50% -8.50%	12%-14%
Investment Amount	10 Lakhs	10 Lakhs
After 5 Years	15 Lakhs	19.25 Lakhs
After 10 Years	23 Lakhs	37 Lakhs

3) Start Now - To be able to have enough corpus to last retirement, it is recommended to start investing immediately, irrespective of the amount of savings. It is established that early investors are less likely to sacrifice or reduce their lifestyle expenses post retirement compared to those who start late. Below table is self-explanatory as how early investors reap benefit of time. 

Power Of Time
Age-Group	20	30	40
Investment Amount Per  Month	Rs 5,000	Rs 5,000	Rs 5,000
Years To Retirement	40	30	20
Rate of Return	10%	10%	10%
Corpus At Age 60	Rs 3.12 Crores	Rs 1.12 Crores	Rs 38 Lakh

4) Don’t Let Retirement Take Backseat - Life is uncertain and there are times that need for higher funds for children education or desire to buy another property or may be new business plan can force one to withdraw from retirement corpus. Such a decision can jeopardise the whole retirement planning and is, therefore, not at all recommended. Under circumstances of urgent financial need, an individual should ideally evaluate other options and costs than drawing out from retirement funds. 

5) Staying Disciplined - Lastly, one has to stay focused on building retirement nest, which includes timely reviewing the investments and their returns and adjusting portfolio. As one nears retirement, it is recommended to systematically shift investments to debt-based funds from equity products so as to counter market risk post-retirement. 

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/