About the author

KishorKumarBalpalli - does not sing like his namesake but believes that financial
literacy and discipline is the key to one's financial freedom, Kishor a Certified Financial
Planner with over a decade of experience in personal finance is a strong proponent of
centric client practices. KishorKumar is the founder and CEO of mymoneysage.in,
which aims to simplify money management as well as Investing in a tax-efficient &
cost effective way.

Mymoneysage.in simplifies money management for you by aggregating all financial instruments at one
place, you can track, plan and invest online at the click of a button. The combination of robo and human
advisor makes sure that you get unbiased & actionable advise so that you can accomplish your financial
life goals.

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 Understanding Saving, Investment & Insurance

Chapter 1: Fundamentals of Financial Planning & Money

Management

Simply put, Financial Planning is a means to bridge the gap between where you are and where you
want to be. It is about prudent management of your finances in a manner that leads to
accomplishment of life goals. You may pursue life goals like buying the dream home, higher
education of your children, retiring rich, going on an exotic vacation, etc. It is concerned with making
wise money management choices today to enjoy a comfortable retirement tomorrow. Financial
planning is related to avoiding non-
important & non-urgent expenditures
Budgeting today i.e. skipping eating out regularly at
expensive restaurants or reconsidering
the recent impulse to upgrade your new
Follow-up
Goal car, to achieve bigger and important
establishment
priorities in life tomorrow.

The Financial Planning process

encompasses six steps as shown in the
figure.

Current financial
Strategy
status
implementation
examination
Financial planning covers a wide variety
of concerns namely money management,
Strategy risk management, debt management,
formulation
investment planning, tax planning,
retirement planning and estate planning.

Financial planning provides you with the ability to comprehend the impact of every financial decision
on the end goal. For e.g. whether the purchase of a particular investment product would facilitate in
paying off the outstanding home loan liability or would push your age of retirement even further? In
this manner, you would be able to envisage each financial action as part of the whole plan and
foresee its short and long-term repercussions on your life goals.

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Financial planning requires an understanding of the following key financial concepts:

1. Power of Compounding

Compounding involves reinvestment of income from an asset in such a way that the earnings
from the investment also work at creating more income. You can use the magic of compounding
to achieve your financial goals. The fundamental principle is to stay invested for a longer period
to make your money blossom like an excellent wine.

Let's understand this with an example:

Suppose Ram starts investing Rs. 1,000 monthly, at the age of 30 and Shyam starts investing Rs.
2,000 monthly, at the age of 45. Both decide to retire at the age of 60, and the invested amount
compounds monthly. Even though both of them invested the same principle amount, Ram's
corpus is more than twice the corpus accumulated by Shyam, at the time of their retirement.
That's what compounding can do for your money if you start at an early age. You can see the
difference in the wealth that both have accumulated at the time of their retirement in the table
below:

The principle of compounding can be used in for

Investment Planning as well. It is all about
maximising returns for every unit of risk taken. A
30-year-old man will have a greater risk appetite
when compared to a 45-year-old man or a 62-year-
old man. Thus, appropriate financial goals must
necessarily be time bound. A person thinking of
buying a house in 5 years needs to decide his
budget and plan to ensure that he has the down
payment available in five years time. Like we often
hear, slow and steady wins the race. Therefore,
nurture your tree of wealth each day and reap rich
dividends in the future.

2. Inflation

Inflation is a malice that is plaguing economies across the world. Purchasing power is adversely
affected by inflation. As inflation increases, money becomes dearer, and money value decreases.
The soaring onion prices a few years ago or the tur dal prices that shot up in the recent past are
classic examples of inflation and price rise affecting purchasing power. From an investor's point of
view, it is vital to have a portfolio that beats inflation. Investing in mutual funds is one of the best
ways to beat inflation. There are various equity mutual funds ranging from large-cap, small/mid-
cap to diversified funds that will help you to beat inflation over a longer duration. Additionally,
commodities & precious metals are an excellent investment option for beating inflation. Hence,
having assets like gold in addition to equity in your portfolio makes sense.

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3. Real rate of return

The real rate of return is the return on your investment after adjusting for inflation. It is
calculated by using the following formula:

Real rate of return = {(1+nominal rate)/(1+inflation rate)}-1

Suppose your bank pays a yearly interest of 8% on your fixed deposit and if the inflation rate is
10%, then the real rate of return on your fixed deposit using the above formula will be:

Real rate of return= {(1+0.08)/(1+0.10)}-1 = -1.8%

6 Steps for Financial Planning of Young Adults

When you must have joined your first job or embarked on a professional career, you might have
been fairly clueless about how to manage your money. If you think financial planning is not your cup
of tea then let me tell you; please reconsider. You just need to have the willingness to create wealth
and a little knowledge of the available financial products and their suitability for your goals.

To start with financial planning, take a look at the six most important things to understand about
money management that will help you lead a prosperous and comfortable life.

1. Understanding savings, investment, insurance

You should know the difference between savings, investments, and insurance. Saving refers to
holding the money in savings account for ready availability towards meeting unexpected or
immediate needs. Parking the entire money this way would provide high liquidity but reduce the
return on investment. So, we should make investments to purchase financial instruments i.e.
Equities, Real Estate, Gold, etc. which render profitable returns in the form of income, interest or
capital appreciation. Insurance refers to entering into a contract with the insurance company to
secure oneself against the risk of financial loss caused by the insured contingency in return for
payment of a regular premium. There's no investment angle involved in insurance.

2. Risk Management

Risk management mitigates financial losses as and when they arise. The best way of managing
financial risks is by purchasing an insurance policy. Insurance will protect you from unexpected
financial losses, compensating according to your contractual obligation with the insurer. You may
insure your assets, health and life.

3. Contingency Fund

A contingency or exigency fund acts as a financial cushion during unforeseen emergencies like job
loss, illness, family crisis, etc. It helps you to avoid digging into other funds. Such a fund should
ideally cover at least 3 to 6 months expenses. The investment should be either low-risk or
guaranteed. It should be liquid, like a savings bank account, Fixed Deposit, Liquid Funds.

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4. Invest in yourself

Even before you start investing in any financial instrument make sure that you have invested
enough in "Yourself." Enhancing technical as well as your interpersonal skills will only add on to
your career growth and helps bring you to an expert level. If you have been neglecting your
health and exercise because of erratic work hours and lack of time, then you should start looking
after yourself immediately. Youth today spend more time with electronic gadgets than with
people. Relationships are much like emergency funds. The more you invest, the more you have
during an exigency. Try spending more time with your family/friends and also, acquaint with new
people.

5. Start SIPs

Once you have set your goals, it's now time to invest. Start doing a SIP the moment you get your
first salary. Systematic investment plans (SIPs) work on the principle of regular and disciplined
investments and allow investing in mutual funds (MFs) through smaller periodic investments
(monthly in most cases), rather than a one-time lump sum investment. That means you can pay
12 regular investments of Rs. 700 each, instead of a single investment of Rs. 8,400. It provides
you with the benefit of compounding and rupee-cost averaging simultaneously. A monthly SIP of
Rs. 1,000 at 9% would grow to Rs. 6.69 lakhs in 10 years, Rs. 17.83 lakhs in 30 years, and Rs. 44.20
lakhs in 40 years. Even for cash rich individuals, SIPs reduce the risk of poorly timed investments
and losing sleep over bad decisions. But the real benefits of SIPs can be realised by investing early
and at lower levels.

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 Chapter 2: Risk Management

The risk is an inextricable part of everyone's life. Risk entails

a possibility of financial loss occurring as a result of
damage/destruction/fall in market value of an asset. On one
hand, risk represents a threat. On the contrary, it offers an
opportunity to grow money. As an investor, you should
know about risk management. Risk management is about
identifying, analysing and mitigating risk to make sure that
financial plan remains relevant and objectives are achieved
as envisaged.

As an individual, you may experience a financial loss due to

personal risks i.e. premature death, temporary/permanent
disability, loss of income, prolonged illness, etc. and
property risks i.e. damage/destruction/fall in the value of the house, vehicle, etc. Insurance is a
prudent way to manage and mitigate personal and property risks. It is a contract wherein the
insurance company/insurer promises to indemnify you against a financial loss caused by an insured
contingency in return for the regular premium paid by you.

As a risk management measure, your financial planning portfolio needs to have a life insurance,
home insurance, car insurance and health insurance.

Life Insurance
Life insurance is a contract between the insurer and the assured whereby the former promises to
pay the sum assured and accumulated bonuses (if any) either on the death of the life assured or on
the expiry of the policy tenure, whichever is earlier. Term Insurance is considered a better insurance
product than other life insurance categories since there is no investment angle in this & it
comprehensively aids you in managing your financial risks.

Term Insurance follows the thumb rule to provide a substantial risk cover i.e. 10-12 times your
annual income in consideration for a nominal annual premium. Only the death benefit is available
under these policies, and there are no maturity or survival benefits. You can select to pay a single
premium or a regular premium. Since the premium is charged only for life cover, you may get high
coverage of up to Rs. 25 Lakh at a monthly premium of as low as Rs. 1200. There is no surrender
value, and the policy does not attain paid-up status.

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Before purchasing term insurance, you need to get yourself acquainted with the following relevant
terms found in life insurance prospectus:

1. Policy/Policy Document

It is a document issued by the insurer as an evidence of the contract between you and the
insurer. It contains the details of the life insurance plan along with the policy terms & conditions.

2. Sum Assured

Sum assured is a fixed amount that the insurer agrees to pay upon happening of the contingency
(i.e. either death or maturity) as mentioned in the policy document.

3. Premium

Premium is the price which you pay to the insurer either as a single instalment or on a regular
basis to get the risk of death covered by the latter. The insurer decides the premium amount
based on the facts declared by you in the proposal form.

4. Death Benefits

Death Benefit relates to the proceeds of the life insurance policy received by the nominee or the
beneficiary upon the passing of the life assured. It consists of the basic sum assured and
accumulated bonus. In contrast to all the other categories of life insurance, only the death benefit
is available on term insurance.

5. Riders

Riders are add-on benefits like Critical Illness, Waiver of Premium, Accidental Death Benefit, etc.
available in addition to the standardised benefits mentioned in the base policy. Riders can be
attached to the base policy by payment of additional premium called Rider Premium over &
above the premium paid to secure the death benefit. The benefit available under the rider
becomes payable on the occurrence of the specified event covered by the rider.

6. Grace Period

A grace period is an extended duration; of 15 days for monthly premium payment mode & 30
days for other premium payment modes, from the premium due date given to the life assured to
pay his due premium. During the grace period, the policy remains in force and the life assured
continues to get the risk cover as per the policy terms without any interruption or penalty.

7. Free look Period

Suppose you are not happy with the insurance policy that you purchased & want to review your
decision. You may do so within the period of 15 days from the date of receipt of policy document
i.e. Free look Period. This period is of 30 days in case of purchase of policy through distance
marketing. If you disagree with the terms & conditions, then you may return the policy

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 document. On returning the policy, the insurer returns the premium paid by you after deduction
of stamp duty & medical examination expenses borne by it, and the contract comes to an end.

Health Insurance
Round the clock you are tied up with official deadlines & keep
challenging your limits. You give priority to target
accomplishments over balanced lifestyle. You skip meals, ignore
workouts & push through late-night work schedules. As a result,
your chances of falling sick & getting hospitalised increase
manifolds. As you know, these days health care comes at a
premium price. To make sure you don't forego necessary medical
treatment due to the inadequacy of funds, health insurance has
evolved as a significant expense.

Health insurance refers to an insurance contract between you & the health insurance company in
which the insurer agrees to provide you with a specified health insurance cover at a particular
"premium" subject to policy terms and conditions. The health cover may include expenses of
hospitalisation, fees of the surgeon, prescription drugs, surgery, etc. subject to overall ceiling of sum
insured (for all claims during one policy period).

Some of the terms used in health insurance coverage are as follow:

1. Co-payment

Under this, you need to bear a certain percentage of the claim amount from your pocket, and the
balance claim would be met by the health insurer. Ideally, you need to buy a policy which has a
lower/nil co-payment limit. Suppose your hospitalisation bill for two days comes to be Rs. 50,000.
If you are covered by a health insurance plan which has 20% copayment condition, then you have
to pay Rs. 10,000 and the remaining Rs. 40,000 will be borne by the insurer.

2. Pre-existing Diseases & Waiting Period

Pre-existing Diseases refers to any illness or condition incidental to the disease with which the
insured is suffering from and has been treated for at the time of policy inception or within 48
months before the first policy issued by the insurer. A waiting period of 24-48 months is applied
to cover the expenses owing to treatment of pre-existing diseases.

3. Cashless facility

The cashless facility allows payment of your medical bills directly by the Third Party Administrator
(TPA) to the network hospital if you get medical treatment in any of the network hospitals. In
such a case, you need not undertake out-of-pocket expenses.

4. Domiciliary Hospitalisation

If you decide to get treatment for any disease at your home which in ordinary conditions should
have been done at a hospital, then it's called Domiciliary Hospitalisation. It happens when your
physical condition restricts shifting to a hospital, or you could not get a room in the hospital.

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 Domiciliary Hospitalisation benefits are extended by the insurer under the health insurance policy
but subject to certain limits and conditions. Before going for it, confirm the diseases for which
domiciliary hospitalisation benefits are given and the ones that are excluded from the cover.

5. Grace Period

If you forget to pay the health insurance premium on the due date, then you get an extension of
15 days; which is known as Grace Period, to do so. Suppose the due date of premium payment is
1 July 2016, then you have to pay it by 16 July 2016 to renew or continue a policy in force without
loss of continuity benefits, else your risk cover may lapse.

6. Network Hospitals

Network Hospitals are those hospitals or health care providers that are enlisted in the panel of
the health insurer and Third Party Administrator to provide medical treatment to the insured on
payment by a cashless facility. When you buy a health insurance policy, the insurer gives you a list
of network hospitals along with the policy. The list is regularly updated, and you will be informed
about such modifications by the insurer

7. Portability

Portability provides autonomy to you for switching from one health plan to another health plan
of the same insurer or transferring the credit of the same health plan from one insurer to another
insurer. It gives continued benefits on PED (Pre-existing diseases) waiting period, and other time-
bound exclusions earned in the earlier health insurance policies.

Suppose Mr Mehra already holds a health plan having a sum insured of Rs. 3 Lakh, which is
nearing renewal date, and wants to switch to another insurer for a higher sum insured of Rs. 5
lakh. He shall apply for the portability in writing to his current insurer 45 days before the policy
renewal date. Upon portability, his health cover of Rs. 5 Lakh would begin only after completion
of the waiting period levied by the new insurer. Until such time, he would remain insured for an
amount of Rs 3 lakh.

Home Insurance
It is said that "the heart is where the home is". Your home holds a
special place in your heart in addition to other beautiful things in life.
You are not only financially but also emotionally attached to your
home. You work so hard to buy a home and put in so much time and
efforts to decorate it with things of your choice. A short circuit or a
sudden gas leak is enough to bring down your dreams to ashes. It is a
nightmare which nobody wants to come true but as we all know life
is full of uncertainties. You cannot eliminate the risk of such mishaps,
but you can provide for it using Property/Home Insurance.

Home Insurance is an agreement between two parties – the house owner and the insurance
company- wherein, the insurer promises to indemnify the losses suffered by the house property on
account of events mentioned in the scope of policy in return for a fixed premium paid by the

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insured. The maximum amount of liability of the insurance company in case of loss does not exceed
the insured amount. Thus, a valid home insurance policy protects not only your cherished home but
also the precious and unique memories and emotions that reside therein.

The first step towards buying the right home insurance cover begins with an understanding of risks
that your home is exposed to.

The risks will into natural disasters and risk due to man-made reasons.

Natural disasters encompass damage to the building and its contents due to lightning, storm,
cyclone, typhoon, hurricane, flood and inundation, subsidence and landslide including rockslide,
bushfire, earthquake, spontaneous combustion, etc.

Damage to the building and the articles within due to man-made reasons include aircraft damage,
riot, strike, malicious damage, Bursting &/or overflowing of water tanks, apparatus and pipes,
missile testing operations, war & warlike operations, nuclear perils, pollution or contamination,
electrical/mechanical breakdown, burglary and housebreaking, etc.

The loss suffered due to these risks can be classified into two categories:

1. Direct Loss

It consists of expenditure incurred to replace the damaged house building. It may include
expenses incurred on repair of damaged contents present in the home like furniture, fittings,
electronic equipment, valuables, etc.

2. Consequential Loss

When House building is damaged, then you may be required to shift to alternate accommodation
on rent and move the contents from one place to another. The extra expenditure in the form of
rent and other living expenses constitute the consequential loss.

Usually, basic home insurance policies offer two types of coverage- one related to the structure of
house building and the other related to contents of the home. You may select risk cover for the
structure or the contents or both. You may get add-ons to the basic policy on payment of extra
premium which may cover consequential loss as well.

How is Premium calculated in Home Insurance?

In the case of home insurance, the premium is calculated based on the sum insured, property area,
the location of the building, the age of the property and the rate of construction (per square feet).
Because of this the amount of premium of two houses of the same size can never be the same. The
premium for a newly constructed house built in 1000 sqft in a central location in Mumbai will be
more than an old construction of the same size located in outskirts of Mumbai. Here, it is vital to
note that the property is insured for the value that would be required to reinstate it and not for the
market value. Whereas, the contents of the house are insured for market value adjusted for
depreciation.

How much Home Insurance coverage is adequate?

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To ensure that you purchase an adequate home coverage, you need to keep following points in
mind:

1. Cost of House Reconstruction

In the event of damage to the original house property, the sum insured chosen by you should be
adequate to rebuild the damaged part of the house or for total reinstatement of the building
from scratch. The sum insured should be based on built area of the house, local cost of
construction, home exterior material, number of rooms in the house, roof type and roofing
materials, any other assemblies in the proximity of the building like a garage or sheds, any unique
features within or outside the house like arched windows, fireplaces, trims on the exterior, etc.

2. Cost of Contents

Along with the house building, you should consider the cost of repairing or replacing the contents
that are destroyed/damaged/stolen by the insured eventuality. For this, you need to prepare
detailed list of the contents of your house like valuables, electronic appliances, furniture, kitchen
appliances, furnishings, etc. and the replacement cost in case of damage, destruction or theft.
You may choose an insurance policy that provides either the Actual Cash Value or Replacement
Cost.

3. Cost of Alternate Accommodation

In the case of any damage to the original house due to the insured eventuality, you may have to
vacate your house and shift to an alternate accommodation until your original house is fully
reinstated. Such an act may require you to incur expenses like room rent, meals, etc. Moreover, if
rented part of your house has been damaged/ destroyed then you may suffer the loss of rent as
well. So, while going for home insurance, you may choose an insurance policy that indemnifies
you for the additional living expenses as well as loss of rent.

4. Public Legal Liability cover

In home insurance, you (insured) are the first party and insurer is the second party. The third party
refers to any other person who may face bodily injury or whose property may be damaged
because of you or your family's actions. Suppose your neighbour's car sustains severe damage
when the boundary wall of your house falls on it, then you are liable to compensate him for such
loss. A comprehensive home insurance policy takes into account such risks & indemnifies the
affected party.

Car Insurance
Ms SuhaniArya is a successful designer who works with a leading interior décor company. She is
currently managing somehow with a two-wheeler, but she desires to buy a car as she moves up the
career ladder. She does a primary research and finds the car of her choice. After that comes the turn
of choosing the right car insurance for her vehicle. When she compares quotes given by different car
insurance companies, the complex terms in the brochure makes her confused about which car
insurance to buy.

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This section explains the important terminologies used in Car/Motor Insurance Prospectus and helps
Suhani and many others like her to get abreast with the terms to get a happy insurance purchase
experience.

1. Insured Declared Value (IDV)

When you buy car insurance, the sum insured or the maximum amount which the insurance
company is liable to pay on happening of the contingency is determined according to the Insured
Declared Value (IDV) or the current market price of your vehicle. The IDV can be determined by
looking at the manufacturer's listed selling price of the car and is adjusted for depreciation at the
time of renewal. The actual IDV needs to be declared while buying car insurance because a lower
IDV may fetch you insurance at a lower premium initially but in the case of a loss you will receive
proportionately lesser compensation.

2. Third Party Legal Liability

In the case of car insurance, you (insured) are the first party and insurer is the second party. The
third party refers to any individual who may face death/any injury or whose property may be
damaged on account of an accident with your car. If such thing happens then, it is your liability to
compensate the third party for the financial loss. Third Party Legal Liability is covered under the
Liability Insurance. The Motor Vehicle Act makes it mandatory for all the car owners to buy
Liability Insurance.

3. Comprehensive Policy & Own Damage Premium

While buying car insurance, in addition to the mandatory Third Party Liability insurance, it is
prudent to get your car insured against the risk of loss or damage under Comprehensive Policy. In
this, you are required to pay Own Damage Premium in addition to Liability Premium. In the case
of an accident, under the Own Damage Premium paid by you, the insurer would indemnify you
for the expenditure incurred on replacement of damaged parts of the car.

4. Personal Accident Cover

Personal Accident Cover should become an inextricable part of your Comprehensive risk cover to
indemnify the financial loss in case of accidental death or disability. Sometimes you need to pay
an extra premium in addition to the own damage premium and liability premium to secure
personal accident cover.

5. No Claim Bonus

No Claim Bonus is a discount given to the insured at the time of renewal of car insurance for
every claim free policy year. Such a discount is expressed in percentage and is given on Own
Damage premium and not on Liability premium. There is a loss of No Claim Bonus upon making
the claim in any policy year. NCB is granted to the insured and not to his vehicle. So, if you sell
your car to some other party, then only the insurance policy can be transferred to the new owner
but not the No Claim Bonus. In contrast to this, you can carry the NCB benefit to be used for your
newly purchased vehicle or when you change your car insurer on policy renewal.

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6. Compulsory Deductible

Compulsory Deductible is that part of the claim amount which should be borne by you and the
balance claim will be paid by the insurer. This condition is applied to deter insured from
approaching the insurer to pay off frivolous claims frequently. The amount of compulsory
deductible depends on the cubic capacity of your vehicle and sometimes the insurer may raise
the limit on policy renewal in case of high frequency of claims in the preceding year. In the event
of a car accident, the total repair bill comes to be of Rs. 10000. When the compulsory deductible
is Rs. 3000, you should bear Rs. 3000 of the claim amount and the balance Rs. 7000 will be paid
by the insurance company.

While selecting a car insurance policy, don't get lured by lower premium policies suggested by
agents as the premium may be lower on account of higher deductible limits. So, carefully check
and compare the policies for deductibles before making a final choice.

7. Break in Insurance

You should get your car insurance policy renewed at the right time before the due date without
any break in coverage. It is so because even a gap of a single day in renewal would subject your
car to a detailed inspection by the insurance company. Moreover, if the gap extends by a period
of 90 days then upon renewal you will be unable to carry the benefit of No Claim Bonus earned in
the prior policy period.

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 Chapter 3: Investment Planning
Benjamin Graham once quoted: "The individual investor should act consistently as an investor and
not as a speculator."

A systematic investment plan (SIP) is a hassle free and smart

way to invest your money in mutual funds. It works on the
principle of continued and regular investments and is much
like a recurring deposit, where you put a small amount of
money every month. It enables you to invest via smaller
periodic investments (Monthly/Quarterly/etc.) instead of a
heavy lump sum one. SIP, for instance, allows you to invest
with ten regular investments of Rs. 1,000 each, instead of
investing Rs. 10,000 at one go in a mutual fund. You can
invest the money monthly or quarterly without changing
your other financial liabilities

Let me take you through some of the avenues where you may think to park your funds:

1. Mutual Funds

A mutual fund is an investment scheme wherein the Asset Management Company pools in
money from a group of investors and makes investments in various assets. When you invest in a
scheme, you get a specific number of units. The value of unit i.e. NAV keeps fluctuating according
to the performance of the underlying asset. Based on maturity, there are open-ended & close-
ended funds. Based on the underlying security, there are equity funds, debt funds & hybrid funds.
You need to understand that each mutual fund offers different risks & rewards. The volatility of
return assesses the risk inherent in a fund.

Mutual funds offer multiple benefits like convenience, diversification, professional management,
flexibility and transparency under a single umbrella. Investing in mutual funds has become very
simple with Systematic Investment Plans wherein you can start your investment journey with an
amount as less as Rs. 500. You may afterwards step-up your investments alongside an increase in
your income.

2. Equity Shares

Equity Shares offer you opportunity of ownership in the company to the extent of your
contribution to the company's capital. In return, you get dividends and gradual capital
appreciation of your invested amount. Once you have decided to invest in equity, you need to do
a fundamental analysis of the stocks you want to invest in. It involves

- understanding the Business Model of the Company to know the quantum & frequency of the
company's revenue,

- conducting an Industry Analysis to know about the forces driving the industry, attractiveness of
the industry and the success factors of the industry,

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 - know about the competitive advantage of the company

- check the management style, tenure of the top management & their roles and

- compare the recent performance of the company to its previous year/ quarters performance. In
addition to this, you can also compare its results with its peers,

- check the effectiveness of a company's balance sheet via its working capital adequacy and asset
performance,

- use the financial ratios analyse the intra-firm & inter-firm financial performance

3. Exchange traded funds (ETF)

Exchange Traded Funds (ETFs) are listed and traded on exchange much like stocks. ETFs track an
index, a commodity, a bond or a basket of securities. ETFs are traded closer to its NAV throughout
the day, which is calculated on a real time basis. Exchange Traded Funds (ETFs) gives the exposure
to various indices across the globe such as S&P 500, Russell 1000, Standard & Poor's 100,
NASDAQ-100, Dow Jones, Nifty 50, etc. The expense ratio of ETFs is low as compared to other
investment options that are actively managed. You can invest in ETFs by opening a Demat
account and a share trading account with a broker. Once the account is open, you can call the
broker and place your order or you can do the transactions through the online platform of your
trading account. Exchange Traded Funds have been designed for the passive investors and work
in line to achieve the returns closer to its underlying index.

4. Non-Convertible Debentures (NCDs)

NCDs are Debt Instruments issued by companies to raise long-term capital. NCDs are usually
listed on the exchanges, and any investor with a Demat Account can invest in it. NCDs can be
traded in the market within the prescribed tenure. Investors can benefit from a higher rate of
interest with an NCD as against a Convertible Debenture. Unlike a Convertible Debenture which
offers an option to be converted to a share at a chosen time in future, an NCD cannot be
converted. NCDs can be classified into Secured and Unsecured. Secured NCDs are backed or
protected by company assets. Any failure to honour the obligation by the issuing corporate allows
the debenture holder to claim the value through liquidation of assets. Unsecured NCDs have no
protection or backing in case of default by the company. NCDs with a high rating are safe.
Similarly, Secured NCDs are more guarded than Unsecured NCDs.

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7 Investing Mistakes to be avoided by Young Investors
Most of the young investors who enter the financial markets want a quick return on investment and
instant gratification of their investment motives. This tendency of "Right Here Right Now" makes
them lose a long-term perspective and commit some serious investment mistakes.

I am listing out seven mistakes that you as an investor should avoid while you embark on your
investment journey.

1. Procrastination

Buying a costly mobile phone with the first salary may seem more appealing to you than creating
an investment account with the same amount. It's so because presently you are unable to
visualise the long-term benefits of a significant retirement corpus that would be built out of such
disciplined savings. Your accomplishment of a financial goal is dependent on two factors i.e.
duration of investment and amount of investment. The longer your money remains invested, the
more returns it would accumulate.

Let me quantify procrastination for you. Anita and Shilpa want to retire at the age of 60. Anita
starts investing Rs. 2000 pm for her retirement, commencing at the age of 30 while Shilpa delays
the activity till the age of 45 but investing 4000 per month. Even though Anita contributes a
smaller amount as compared to Shilpa, she would end up with a bigger retirement corpus of Rs
38.4 Lakh, which is four times more than the amount that of Shilpa. It happens because of the
power of compounding. Thus, each day postponed would require more money to build the same
amount of corpus to achieve financial goals.

2. Risk aversion instead of Risk-seeking

As a young investor, you may assume higher risks as time is on your side as well as the possibility
of income increment in the long term. But a lack of financial awareness and literacy may cause
you invest more in low yielding fixed income instruments like FDs, NSC, bonds, etc. You should
understand that such instruments provide you only assured returns at the cost of wealth
creation. A fixed deposit at 7.5% interest rate gives you a negative real rate of return after taking
taxes and inflation (5.7%) into consideration. Thus, Investment in long-term instruments like
equity helps in wealth maximisation and gives a positive real rate of return.

3. Ad-hoc Investing without a Plan

Adhoc investing also happens when you don't have a plan, and a friend or relative of yours makes
you a part of their program by selling you financial products that are in line with their financial
objectives. If you also invest in financial products succumbing to coercion from friends or family
or to fulfil immediate tax-saving needs, your probability to digress from personal financial
planning goals increases. Before investing try to find out risk-return-liquidity implications of such
products. Make sure it contributes towards the accomplishment of your financial goals.

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4. Bandwagon Effect

Under Bandwagon Effect, you will feel left out if you are not participating in markets that are
skyrocketing. Because of the emotional turbulence, you do not investigate the investment plan to
gain a deeper insight. You refuse to believe that "How so many people could go wrong in their
investment decision?" Like the majority of investors, you also consider those plans as sound.
Consequently, you burn your fingers and your portfolio returns tank. One who goes by logic and
facts would be able to steer his boat in the midst of media hype and enthusiasm from all
quarters.

5. Not Stepping up your Investments

Owing to ever-rising inflation, the same amount of investment continued for a relatively
extended period of time would not fetch an ample corpus to fulfil your financial goal. As your
income grows, you should increase your level of savings as well. Suppose you earn a monthly
salary of Rs. 1 Lakh and contribute 30% of your salary i.e. Rs 30,000 towards a Systematic
Investment Plan. Next year you get an increment, and your monthly salary grows to Rs. 1.5 Lakh.
Accordingly, you need to step-up your investment by Rs. 15,000 and contribute an amount of Rs.
45,000 towards your SIP. In this way, you need to maintain a desirable saving to income ratio and
keep increasing your savings rate with an increase in your income.

6. Falling prey to Ponzi schemes

Ponzi schemes like the Speak Asia scam, the Saradha Chit Fund Scam, Sahara Scam, etc. are
collective investment schemes which promise to give you sky-high returns in a short span of time.
It pays returns to already existing investors out of money collected from new investors instead of
paying out of profits. Because of greed and in a hurry to make easy money in a short span of time,
you may consider putting whole life savings in these schemes. Don't let the greed take the central
stage in your investment decisions. Beware of such schemes. Do look for the warning signs before
you invest your money.

7. Putting all your eggs in the same basket

Lack of diversification of investments i.e. sticking to only one asset class like equities or bonds and
lack of rebalancing increases your probability of loss. Suppose your initial asset allocation at the
beginning of the year was 70:30 on equity and bonds. As the stock markets grew in the
subsequent year, the ratio changed to 80:20 which made risk exposure to exceed your target
asset allocation. To ensure desired risk exposure, you need to sell some stocks and buy some
bonds to bring back the ratio to 70/30. Hence, it is advisable that you diversify and rebalance the
portfolio to conform it to your risk preferences and financial goals.

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 Chapter 4: Debt Management
Sometimes your financial means may fall short to meet your financial ends like buying a car or a
house property, thus eliciting the need to borrow. So, before you finalise your decision to take a
loan, you need to make a plan. First, you should ask yourself if the debt can be avoided. If you
cannot avoid debt, then you need to discriminate good debt from bad debt to avoid falling into the
debt trap. Good debt is like home loan, education loan which is eligible for tax exemption. Bad debts
are the spiralling outstanding balances on the credit card which harms your bottom-line.

Let me take you through some important concepts that form vital part of debt management:

1. Pre-EMI vs. EMI

Pre-EMI makes you pay only the interest on the amount of loan
taken, till you get the possession of the house when the home
loan is disbursed in tranches. They precede the actual EMI. You
will still have to pay the EMI after you get the possession.

In the case of EMI, the bank disburses the entire loan at one go,
and the first instalment of the loan becomes payable
immediately. You will have to start paying both the principal and
the interest quickly because the bank released the loan upfront.

Project delays are the norm in our country with most builders failing to complete their work on
time. If you have opted for pre-EMIs, you'll end up paying interest for a longer duration.
Moreover, about tax implication, a principal prepaid before getting the ownership of property,
can't be deducted under the Income Tax Act. Interest paid before possession, however, is an
allowable deduction. Under section 24, interest paid during the period before ownership can be
divided into five instalments and claimed for five consecutive years for a maximum of Rs. 2 lakhs
per year. For a let-out property, there is no upper limit.

Thus, paying EMIs instead of pre-EMIs always makes financial sense, except in the following
cases:

- You are an investor and will sell the property as soon as construction is complete.

- You are cash strapped but expect a rise in income before getting possession of the house.

- You are staying in a rented house while waiting for the possession and can't afford to pay both
the full EMI and rent at the same time.

2. Debt-to-Income Ratio

Debt-to-Income Ratio measures the quantum of your income that goes towards payment of EMI
on loans taken by you. It is calculated by summing up EMIs on the home loan, car loan, personal
loan and any other type of loan which you may have borrowed, and dividing it by your monthly
income. The formula is given below for your understanding:

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 Debt-to-Income Ratio = (Total EMIs/ Net monthly income) * 100

The resultant figure would be expressed in percentage. Whenever, you apply for a loan, the
lending institution checks your debt-to-income ratio and approves the loan application only if the
ratio is within manageable limits. A high Debt-to-Income Ratio of a borrower is a sign of an
overleveraged profile and is, therefore, considered risky and less creditworthy by the lender.
Ideally, you should try to maintain the ratio below the level of 50%.

3. Credit Score

A credit score is calculated by analysing an individual's

credit reports sourced from various credit bureaus.
Lenders, like credit card companies and banks, use the
credit score to evaluate potential risks that could arise
by lending money to a person and to reduce losses
because of bad debts. Organisations like mobile phone
companies, government departments, insurance
companies and others, also resort to credit scores as
and when required.

Credit Information Bureau (India) Ltd (CIBIL), collects

financial data of a person, like loans and credit card information, from various financial
institutions, including banks and prepares a credit information report (CIR). CIR is used to
compute the credit score, i.e. a 3-digit number ranging from 300-900 points, via a sophisticated
statistical algorithm that factors in a person's credit history like borrowings, repayment pattern,
repayment defaults and other relevant data regarding an individual's credit worthiness.

The credit score ranges from 300 to 900. Ideally, a score above 750 is regarded as a good score
and getting a credit card, or loan will not be a problem. A high credit score also means that you
can leverage it to negotiate to get lower interest rates from lenders. You should review your CIR
once in every three to four months. This way you can ensure there are no identity thefts,
continuous revision of the score based on regular loan repayment and check on any debt
accumulation.

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 Chapter 5: Tax Planning
Benjamin Franklin once rightly opined "In this world, nothing can said to be certain, except death
and taxes".

It is vital to recognise that tax planning

goes hand-in-hand with financial
planning. An individual cannot achieve
his financial goals if he fails to shoulder
his tax liability appropriately. Thus, Tax
Planning is considered as an important
activity for financial planning and has
emerged as a prudent method to
ensure that one doesn't end up
shouldering heavy tax burden.

In fact, tax planning is a smart choice

to manage one's taxes while remaining
inside the legal framework. Tax planning encompasses availing tax deductions, exemptions, rebates
and reliefs prescribed by the authorised bodies. By using tax planning, the taxpayer is motivated to
divert his unutilized surplus funds to productive purposes and investment schemes. In the long run,
such an activity leads to the capital formation and economic growth of the country.

Tax planning for salaried employees involves being aware of various components of salary and its tax
implications. Salary is said to be the payment received by or accruing to an individual for service
rendered for an express or implied contract. Salary includes wages, annuity, gratuity, perquisites,
provident fund, leave encashment, etc. Section 10 of the IT Act provides for certain categories of
payments to be exempt from tax either partly or wholly like leave encashment, compensation on
Voluntary Retirement, Death cum Retirement Gratuity, Commutation of Pension, Interest income &
investments, payment from the Provident Fund, etc.

Over & above the basic salary, employees receive additional payments called ‘Allowances' regularly
to meet their specific requirements. Some of the allowances are fully taxable in the hands of the
salaried employees namely City Compensatory Allowance, Fixed Medical Allowance, Dearness
Allowance, Overtime Allowance, Servant Allowance, Project Allowance,
Tiffin/Lunch/Dinner/Refreshment Allowance, Telephone Allowance and Holiday Allowance.

Then there are allowances which are partly taxable as shown in the table below:

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According to Section 192 of the IT Act 1961, every employer has to deduct tax necessarily at source
from the income under the head "Salary". Tables below illustrate the applicable TDS Rates for AY
2017-18 for individuals under different age group:

1. For Individuals (resident or non-resident)/ HUF/ Association of Person/ Body of Individual:

2. For Senior citizens (people of the age of 60 years or above at any time of course during the
previous year but below 80 years of age on the last day of the previous year):

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3. For Super Senior citizens (who are of the age of 80 years or more at any time during the last will
year):

Notes:

- If the total income exceeds Rs. 1 crore, then a surcharge of 15% is levied on the amount of Income
tax.

- Income tax amount and the applicable surcharge are further increased by Education Cess &
Secondary and Higher Education Cess determined at the rate of 2% and 1%.

- If the total income does not exceed Rs. 5,00,000, then a rebate of either 100% of the income tax or
Rs. 5,000, whichever is lower, is available.

Income Tax Deductions (For F.Y. 2016-17)

The deductions available to you from Section 80C to 80U and the eligibility criteria have been
discussed at length in the following paragraphs for your understanding:

1. Deduction under Section 80C

Investment in following avenues notified under Section 80C enables a tax deduction:

- Life insurance policy or deferred annuity premium payment (on the life of self, spouse or
children)

- Contribution to recognised provident fund like PPF or EPF.

- Subscription to any notified security scheme of the Central Government, NABARD or LIC Mutual
Fund.

- Tuition fees of maximum of 2 children in any educational institution located in India.

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 -5-year Term deposit with a post office or a scheduled bank.

-Stamp duty and registration charges paid on purchase or building of residential house property.

-Principal repayment on home loans for purchase of residential property (maximum limit is Rs.
1.5 Lakhs)

The related subsections of Section 80C are as follows:

- Deduction under Section 80CCG: Investment in Rajiv Gandhi Equity Savings Scheme for at least
three years provides you with a maximum tax deduction of Rs. 25000 over and above amount of
Rs. 1.5 Lakhs claimed under Section 80C.

The highest amount of deduction available under this head is capped at Rs 150,000 which is an
aggregate of the deduction claimed under Section 80C, 80CCC and 80CCD.

2. Deduction under Section 80D

The health insurance premiums paid towards your health or health of your spouse and
dependent children fetches you a tax deduction of up to Rs. 25,000. If the health insured is a
senior citizen, the tax deduction amount goes up to Rs. 30,000. Upon covering the health of your
parents, an additional Rs. 25,000 is allowed as deduction. The amount contributed in a Central
Government health Scheme for preventive health check-up is also deductible under this section
subject to maximum limit of Rs. 5000. However, the cumulative amount of deduction available
for all the above expenditure cannot exceed Rs. 60,000.

3. Deduction under Section 80DD

An insurance policy taken towards treatment and rehabilitation of your disabled dependent
relative could qualify you to claim a tax deduction of up to Rs. 75,000 and Rs. 1.25 lakhs in case of
severe disability.

4. Deduction under Section 80DDB

Medical expenditure on treatment of critical diseases like AIDS, cancer, neurological ailments, etc.
may fetch you a tax deduction up to Rs. 40,000 on the show of a written prescription from the
specialist doctor i.e. oncologist or neurologist. If you or your dependents are a senior citizen, then
the limit goes up to Rs 60,000.

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5. Deduction under Section 80E

The entire amount of interest paid by you on education loan for yourself or your children is
allowed as a deductible expense for a maximum period of 8 years.

6. Deduction under Section 80EE and Section 24

When you take a home loan for the purpose of purchasing or constructing a house property, the
amount of interest payable annually on housing loan can be claimed as a tax deduction under
Section 24. If the interest becomes payable before commencement of construction, then all such
interest instalments payable would be aggregated and would be allowed as a deduction in five
succeeding years beginning from the year in which the building stands completed. In the case of
self-occupied property, the maximum limit of deduction allowed is Rs. 2 Lakhs. If the construction
is not completed within three from the year of borrowing, then maximum deduction allowed
would be Rs. 30,000.

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 The Budget 2016 appears promising for the first-time home buyers regarding the interest payable
on home loans. An additional deduction of Rs. 50,000 has been allowed by the government under
Section 80EE towards the interest payable on home loan for first-time home buyers. This extra
deduction would be available on a condition that the value of house property should not be more
than Rs. 50 Lakh and the loan amount borrowed for the purpose should not exceed Rs. 35 Lakh.
Moreover, you would be required to take the loan in between 1st April 2016 and 31st March
2017.

The total amount of deduction available on purchase/construction of self-occupied house

property is displayed in the following table:

7. Deduction under Section 80G

The charitable contributions you make to approved funds, trusts, charitable institutions, notified
temples, notified relief funds established by Central Government or State Government like
National Defense Fund, Prime Minister's National Relief Fund, Prime Minister's Armenia
Earthquake Relief Fund, etc; for promoting social cause, culture and arts, sports, welfare of the
disabled, etc., you can claim the amount as tax deduction. However, the qualifying amount of
donations for other categories is subject to certain limits.

8. Deduction under Section 80GG

If you happen to be residing in a furnished or unfurnished rented accommodation and if you do

not receive any house rent allowance, then Section 80GG holds very much relevance for you.
Under this, you can show your monthly rent of either up to Rs 2000 per month or 25% of your
total income; whichever is less, as a tax deduction.

9. Deduction under Section 80GGA

Those taxpayers who do not have earn income by way of Profits and Gains of business or
profession are allowed to claim a deduction for the donation made towards promotion of
scientific or social research or development projects of the government. The maximum limit of
deduction has been set at Rs 10,000 wherein the donation must have been made by non-cash
modes.

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10. Deduction under Section 80GGC

100% of the contributions made by individuals to any political party or electoral trust by non-
cash modes are eligible for deduction under this section.

11. Deduction under Section 80QQB

Under this section, income earned by a resident individual author by way of royalties on books
of specified category can be claimed as a tax deduction subject to a maximum amount of Rs. 3
lakhs.

12. Deduction under Section 80RRB

When you are earning royalty in respect of a patent registered on or after 1-4-2003, you make
yourself eligible to claim such an amount as a tax deduction up to maximum limit of Rs. Three
lakhs.

13. Deduction under Section 80TTA

Holding saving account in banks helps you to claim such interest earned as a tax deduction up to
Rs 10,000.

14. Deduction under Section 80U

Individuals who have been certified as disabled by the medical authority following the provisions
of Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act,
1995] are allowed for a tax deduction of Rs. 75,000. This limit would be increased to Rs 1.25 Lakh
in the case of severe disability. Some of the disabilities identified in the act are Autism, Cerebral
Palsy, Mental Retardation, etc.

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 Chapter 6: Retirement Planning
Retirement refers to that phase in
your life when you cease to hold a
regular job and start reaping the
benefits of the savings
accumulated over the years.
Moreover, your susceptibility to
illness increases which may
escalate the overall cost of living
owing to inflation and gradually
surging health care expenditure.
Thus, it calls for making a
retirement plan while you are
young and earning. You need to
estimate your post-retirement monthly expenses and devise a retirement plan which addresses the
issue of funding the estimated expenditures. Hence, retirement planning encompasses two stages
namely: the accumulation phase and distribution phase.

In accumulation phase, you invest your savings in different avenues that lead to build-up and growth
of retirement corpus when you are on the job. It can be dealt with by using the following schemes:

1. Public Provident Fund Scheme

PPF helps you to build a retirement corpus; over the tenure of 15 years, if you are not covered
under any other pension schemes of the government. With benefits such as tax-free returns and
capital protection, PPF is a preferred asset that can be part of your debt portfolio. You can open a
PPF account with a minimum deposit of Rs. 100. However, in a financial year, i.e. April 1st to
March 31st, the minimum and maximum qualifying amount of deposit are Rs. 500 and Rs.
1,50,000 respectively. The PPF interest rate for the 1st quarter of the fiscal year 2016-17 is 8.1%
per annum effective from April 1st, 2016 and is subject to revision on a quarterly basis. PPF
comes under EEE tax structure i.e. Exempt-Exempt-Exempt, which means that the amount
invested during the tenure, interest earned during the tenure and the maturity amount are all
tax-free. Also, you can claim up to Rs. 1,50,000 as a tax deduction under section 80C of the IT Act,
1961.

2. Employee Provident Fund (EPF)

The Employee Provident Fund (EPF) is managed by the Employee Provident Fund Organisation
(EPFO) of India. Every month a part of your salary goes into EPF, thereby building a tax-exempt
corpus which is handed over to you on retirement. PF Withdrawals are allowed only on being
unemployed or when two months have elapsed since you were last employed. However, PF
withdrawals on account of leaving the company may cause a loss of tax-free interest, compulsory
savings, and annual compounding. Alternatively, you can transfer the PF balance from your
previous employer to the current employer using your Unique Account Number (UAN) system. PF
withdrawal upon five years of service completion won't attract TDS but in other cases, a TDS at

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 10% and 30% is levied on registered and unregistered PANs respectively. No TDS is deducted if a
PF account is transferred, or when an employment contract is terminated because of the
employee's failing health, cessation of the employer's business or any other reason which is not
the responsibility of the employee.

In the distribution phase, you choose the manner in which you would like to receive the
accumulated corpus to fund your expenses after retirement. It can be dealt with by using the Top 10
Monthly Income Investment Options in India namely:

1. Post Office Monthly Income Account Scheme

In case you have a zero risk tolerance and want to earn a steady income go for it. You get a
monthly interest at the rate of 7.8% compounded annually beginning on April 01, 2016. The
maturity period of the scheme is five years although premature encashment is allowed only after
one year of deposit. A penalty of 2% and 1% is imposed on premature withdrawal within the first
three years of deposit and within 3rd to 5th year of deposit respectively.

2. Bank Fixed Deposit (FD)

Bank FDs are a more suitable choice for the investors falling in the low tax brackets or zero tax
brackets. FDs allow you to deposit a lump sum amount for a fixed term i.e. from 7 days to 10
years and earn regular interest compounded monthly/quarterly. FDs are insured by the Deposit
Insurance and Credit Guarantee Corporation (DICGC) up to an amount of Rs. 1 lakh against
default by banks. Senior citizens earn a higher interest on their deposits. Co-operative Banks may
give you higher interest but have higher default risk.

3. Long-term Government Bond

You can invest in bonds if you have a low-risk appetite and investment horizon of more than ten
years. The interest is paid on a half-yearly or annually. These bonds can be traded anytime in the
secondary market.

4. Senior Citizen Savings Scheme

If you fall in the age bracket of 55-60 years, then you can open an account under this scheme
within one month from the date of the receipt of the retirement benefit. Moreover, the amount
deposited should not exceed the amount received through the retirement benefit. The interest
under this scheme is compounded quarterly at 8.6% p.a. This interest rate is effective from April
01, 2016.

5. Corporate Deposit

Corporate deposits are offered by non-banking financial companies or housing finance

companies. Under this, you can earn interest on a quarterly or half-yearly basis. They also provide
an additional interest rate of 0.25% - 0.5% for the senior citizens. As these instruments come with
a default risk, so it's prudent to invest in a company with a credit rating of at least AA or AAA.
Also, diversify your risk by investing in deposits of multiple companies.

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6. Annuity

Pension plans sold by the insurance companies provide a regular income stream with minimal
risk. These are of two types: Deferred and Immediate. Under deferred annuity plan, your money
gets invested for the tenure chosen by you, and you start receiving an annuity at a later date. On
the other hand, in immediate annuity plan, you start getting annuity payments immediately after
making the lump sum payment. There are multiple payout options available under annuity plans
like payment for a fixed period, payment for a lifetime, joint and survivor annuity payment, etc.
However, investment in annuity attracts charges such as commission, surrender charges, and
annual fees. Also, annuity receipt is taxable under the head "Income from Other Sources".

7. Mutual Fund Monthly Income Plan

MIPs are debt-oriented schemes that give you a higher real rate of return by investing primarily in
instruments like treasury bills, certificate of deposits, commercial papers, equity, etc. The
investment tenure in MIPs is between 2 to 3 years. You can opt for the dividend payout option for
a regular income in the form of dividends on monthly/quarterly/half-yearly/annual basis. As
dividends are paid out of the profits, so there may be an irregularity in payment of dividends by
the company.

8. Rent from Real Estate

You can earn inflation-adjusted monthly returns by investing in a commercial property with high
rental yield, typically an office/warehouse/shop space. The rents may increase over time with an
increase in real estate prices. However, liquidity is a huge concern when it comes to real estate
investments.

9. Reverse Mortgage Loan enabled Annuity (RMLeA)

RMLeA provides higher annuity payments for your entire lifetime to secure your dignity after
retirement. It is a tripartite agreement between the lender bank, the life insurance company and
the borrower. Initially, you mortgage your house property with the bank. The bank then
determines the principal loan amount and uses it to purchase an immediate annuity plan from
the life insurance company. Upon commencement of the annuity plan, the bank would be known
as the Master Policyholder, and you would be called the annuitant. Under the annuity plan, based
on the sophisticated pricing models, the insurer prepares a disbursement schedule and makes
annuity payments to you in monthly, quarterly, half-yearly or annual instalments. Every year, 15
days before the policy anniversary, the bank gives your existence certificate to the insurer to
ensure continuous annuity payments. The annuity payment ceases either on your demise or your
renunciation/sale of the house property.

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 Chapter 7: Estate Planning
You aspire to amass wealth to live a
comfortable and peaceful life. But at
the same time, you would want your
legal heirs to experience the same
material comfort with your wealth
upon your demise. Hence, when you
are alive and able, it becomes your
responsibility to make proper estate
planning. It guarantees trouble free
inheritance of the property by the
deserving individuals. It entails preparation of a will in which you determine who should be your
legal heirs and in what proportion, at what time and in what manner should they inherit your estate
upon your demise.

Any person above 21 years of age can make a will. It's advisable to write a will in your handwriting
facilitate verification in case of doubts raised by the next of kin or relatives.

Importance of a will
A will is immensely valuable and should be on your list of priorities, once you have acquired
reasonable wealth and assets. If you die sans a will, your family members are likely to face much
inconvenience as your money will be distributed according to the Hindu Succession (Amendment)
Act, 2005. Succession and inheritance laws are diverse and complicated and are different for Hindus
and Muslims.

How to make a will

There are several parts to a will, which when completed, provides the full will. There's no specified
or legal format, but there's a template which lawyers widely follow and has been used for centuries.
It's simple, logical, and based on common sense. There are many online platforms like Willsecure
and Easywill that helps in making a will.

Here's how a will is usually written in our country:

1. Declaration

In the first paragraph of your will, declare that you are writing the will in the full sense and not
under any coercion. Mention your name, age, address etc. to confirm your identity. You may also
start with the phrase: "This is the last will and testament of…" irrespective of whether it's the last
will or not. The phrase negates all of your previous wills.

2. Details of assets and documents

In the second step, provide a list of all your fixed and liquid assets along with its present market
value. These include land, house, bank fixed deposits (if not nominated), mutual funds, postal
investments, share certificates and similar things. You should also indicate where these papers

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 are stored. If it's stored in your bank locker then ask the bank regarding the rules to release the
will from the locker after your death. Inform the executor of your will and your family members
about its location.

3. Details of ownership

You should always name the legal heirs and their proportion of assets thereof, after your death,
at the end of the will. It is the actual "will" part of your will. If you want to give a part of your
assets to a child, you have to appoint a custodian to manage the property on behalf of the child,
till he/she becomes an adult. A guardian, needless to say, must be a trustworthy individual.

4. Signing the will

Lastly, you have to sign it mentioning the date and place, in the presence of two independent
witnesses. The witnesses will sign below your signature affirming that you signed the will in their
presence. It's important that the witnesses are not the direct beneficiaries of the will and young
enough to outlive you. Witnesses only certify the signing of the will and are not a party in its
making. The envelope of the will should be sealed and bear the date and your signature.
Witnesses need not sign the envelope.

What can be willed?

Religion and customs have largely governed succession laws in India for centuries. They also differ
among men and women.

A Hindu (including Sikhs, Buddhists, and Jains) man can will any property owned and earned by him.
It could be any asset like jewellery, cars, flat, in fact; any right with or without a monetary value.
Even liabilities or obligations may be passed along with the assets. However, assets that are not
legally transferable can't be transferred by a will. For an inherited property, a Hindu man can only
bequeath his share through a will. Hindu women, on the other hand, have full ownership of all
inherited and earned property. They have the right to bequeath their entire property.

Muslim law allows a man with successors to will only a third of his wealth. The balance is passed on
according to religious laws. But the limitation won't apply if the deceased's heirs give their consent.

In the case of leased properties, only the right for the balance period of the lease after a person's
death can be transferred through a will, irrespective of the person's religion.

Points to remember while making a will

- If possible, try to get a lawyer and a doctor as your witness. The lawyer can vouch for accuracy of
your will while the physician can vouch for your sound mind while writing the will.

- To retain validity of the will, don't name your witnesses or their spouse as a beneficiary.

- Write the will on high-quality paper and store in a full-sized plastic envelope void of folds.

- Keep a copy of the will stored away from your original will, preferably in a bank or home locker.
Inform next of kin about it. Don't make more copies of the will than required.

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- Ancestral property cannot be transferred by a will in Hindus. So if you are a Hindu, then you should
explicitly mention whether a property has been inherited or not. Rights of all inherited property are
acquired by birth.

- State how much each of the beneficiaries will receive in percentage, rather than in absolute
numbers, unless it's liquid cash.

If there's no will
Here's what you need:

1. Succession certificate

It is perhaps the most important document you'll need to stake claim to a deceased's property. It
also gives authority to a person to represent the dead for collecting debts and securities. You
have to move the high court or a magistrate's court, along with supporting papers, to get the
certificate. For immovable properties, documents like a gift deed may help.

2. Bank accounts and death certificate

A certified copy of the municipal death certificate is required to access bank accounts with no
nomination. The succession rule applies here as well. It's advisable to register a nominee for bank
accounts to avoid hassles in claiming the money of a deceased.

3. Minor child's right

If the parents of a child suddenly die without compounding a will, the minor has to move to the
court through a guardian to stake claim to the property. While minors can own property, they
have no rights to manage it. If none comes forward because of the fiduciary nature of the
relationship, the court may appoint a guardian or a special officer to manage the minor's share of
property. If a child inherits a share of his/her parent's property, the spouse can't sell, rent, lease
out, refinance or mortgage it sans a court order. The court may issue additional orders on how a
child's assets would be invested, till attainment of maturity.

4. Mutual agreements

The real problem arises when the deceased has too many heirs, each claiming a fair share of the
property. The best way out in such cases is to compound a mutual agreement in the presence of a
lawyer regarding the distribution of assets. Its provisions should not be biased towards any party.
The agreement can then be signed by witnesses and filed before a succession court with an
application. It can also be duly recorded at the sub-registrar's office by a partition deed.

A simple & easy guide to personal finance mymoneysage.in

 Key Takeaways

1. Compounding means
earning interest on
interest. The earlier
you start the more
magic you can see of
compounding and the
wealthier you will be.
Invest right away and
start enjoying the
magic of compounding.
Transform your hard
earned money by
teaching it to work for
you so that you can sit
back and relax!

2. Inflation is a necessary evil especially in a developing economy like India and it eats up the
purchasing power if not considered aptly. Therefore, it is crucial from an investor's perspective to
have a portfolio which is diversified and balanced, or we can simply say a portfolio that has a hedge
against inflation.

3. Getting into the financial discipline is the most important thing for young adults. Most youth in
their first job, spend their earnings on things that give them instant gratification, largely because
they taste financial independence for the first time in their life. But saving for the future, and
providing for emergencies, should also be prioritized, because financial planning is all about planning
for a CERTAIN TODAY as well as an UNCERTAIN TOMORROW.

4. Term Insurance has always been regarded as better insurance product than any of the other life
insurance categories since there is no investment angle in this & it comprehensively aids you in
managing your financial risks. Term Insurance is the order of the day & you should get one for
yourself as soon as possible.

5. Both lack of health insurance and inadequate health insurance may lead to various financial &
medical problems. Corporate insurance policies cease to cover risk in the event of job changes or
layoffs. Hence, it is important to buy an additional health cover for yourself & family. Health
insurance is a function of your annual income, average medical expenditure, family history of NCDs,
the number of dependents, lifestyle habits, place of residence, occupation, age, etc. These days the
underwriting processes of the health insurers have become stringent & rejection of proposal may
happen on account of numerous reasons. My advice to you is to disclose all your facts truly & fully &
insist on medical examination from a reputed laboratory. Get a health check-up done on your own
to rule out minor illnesses. Finally, understand the terms, conditions & exclusions of the health
insurance policy clearly & settle for a plan that meets your requirement completely.

A simple & easy guide to personal finance mymoneysage.in

6. Selection of Home Insurance policy is rather a less cumbersome process than buying or
constructing your dream home. Keep all the factors mentioned above in mind and make an informed
decision. Read the policy document carefully and choose an adequate insurance coverage. Claim
Settlement process is regarded as somewhat intricate process wherein you need to be vigilant about
the manner in which you report the cause and extent of financial losses.

7. The fundamental purpose of car insurance policy is to cover you against the risk of own damage as
well as third party liability. Selection of right car insurance policy is a complex and analytical task in
itself, but if you follow some of the simple guidelines mentioned above the process become easy &
seamless.

8. William A Ward, one of the most quoted American writers, once said "Before you spend, earn.
Before you invest, investigate."

Small mistakes at the time of investments may cost you big. Crowd mentality may lead you away
from your financial goals. Ponzi schemes which promise to provide quick money in a short time
inflicts only financial sufferings. Therefore, be vigilant, composed, and informed when you enter the
financial market. Get up and get going. Start saving, invest carefully and retire rich.

9. Instead of a piecemeal approach, tax planning needs to be performed on a continued basis and in
tandem with your financial planning. Deductions available under Income Tax Act are there to assist
you but at the same time consider the eligibility criteria, the maximum amount of permissible
deductions and your financial goals while making investments. In a nutshell, a systematic and well-
planned approach to fulfilling your tax liability would ensure peace of mind and financial well-being.

10. If you are looking for a regular income stream to supplement your disposable income post
retirement, then annuity enabled reverse mortgage can come handy. The product may seem
appealing, but you need to proceed with caution. You need to collaborate closely with the lender
bank to understand the quantum and mode of annuity payouts. Also, you need to know the intricate
procedure that the bank will employ towards repayment of loan principal and accrued interest.
Before taking the final leap, you may discuss this with your legal heirs as the mortgage is going to
risk their estate.

11. Credit score tells your credit worthiness to the lenders. Hence, it is crucial to keep your credit
score intact. Make sure that there is no delay in your payments, no cheque gets dishonoured, keep
away with unsecured loans. Keep a track of your credit score so that you don't get rejected when
you are looking for any credit.

12. Estate planning done promptly prevents the survivors from getting into legal battles and avoids a
plethora of financial and emotional predicament. It ultimately helps in preparing an inventory of
your assets and brings your finances in order.

A simple & easy guide to personal finance mymoneysage.in

A simple & easy guide to personal finance mymoneysage.in