EPF becomes the most attractive risk-free investment avenue post incresae in interest rate

Latest Developments

Interest rate of 9.50 % on Employees Provident Fund (EPF) makes them attractive vis-à-vis other traditional savings instrument
Sep 15, 2010
The News
In a surprise but encouraging move, the government increased the interest rate offered in the employees' provident fund (EPF) by 1 percentage point to 9.5 % per annum for the current fiscal year that ends in March 2011.
Over 4.4 crore workers and employees of the public and private sectors in the country will receive an interest rate of 9.5% pa instead of 8.5% pa for financial year 2010-11 for their savings in the Provident Fund account.
The move to increase the interest rate by one percentage point was taken at a meeting of the Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO). The recommendation of the EPFO trustees will now be forwarded to the finance ministry. The finance ministry, which notifies the provident fund interest rate, usually accepts the recommendation of the board of trustees of EPFO.
The move is expected to benefit nearly 4.71 crore employees in public and private sectors. This is the first that the interest rate on provident fund deposits has been increased to 9.5% since 2004-05. With this hike in interest rate, EPFO deposits become more attractive than bank fixed deposits, which at present are offering interest in the range of 7-7.5 per cent. The rate hike is expected to put pressure on companies with independent PF trusts, as they are required to match the PF rate declared by the government.
Analysis & Comments
Three cheers for the govt. & the EPFO department for raising the interest rate to an attractive 9.5% pa. this will at least make it beat inflation which is very high in india and shall remain high in the near future. With this move, the EPF becomes one of the most remunerative fixed income instrument in our country. Have a look at the graphic below:
Comparison of Real Rate of Returns across various instruments

Traditional Savings Instrument	Interest Rate (% pa)	Inflation Rate (% pa)	Real rate of Return (% pa)
Employees Provident Fund Or EPF (FY 2010-11)	9.50 % pa	6.50 % pa	3.00 % pa
Senior Citizens Savings Scheme (SCSS)	9.00 % pa	6.50 % pa	2.50 % pa
Public Provident Fund (PPF)	8.00 % pa	6.50 % pa	1.50 % pa
Bank Fixed Deposits (FDs)	6.75% pa to 7.50 % pa	6.50 % pa	0.25% pa to 1.00 % pa
Debt Mutual Funds	7.00 % pa to 8.50 % pa	6.50 % pa	0.50 % pa to 2.00 % pa
Monthly Income Plans (Mutual Fund MIPs)	10.00 % pa to 12.00 % pa	6.50 % pa	3.50 % pa to 5.50 % pa
Equity Mutual Funds *	15.00 % pa to 18.00 % pa	6.50 % pa	8.50 % pa to 11.50 % pa

*market linked; past 5 years CAGR returns
It is very clear from the table above that with the 1% hike, the EPF @ 9.50% pa has become more remunerative for the Indian investors & even better than Senior Citizens Savings Scheme (@ 9% pa) & PPF (@ 8% pa). The all season & investors favorite Bank Fixed Deposits (FDs) is no match for any of the above three, at least at today’s prevailing rate.
Also, always compare the rate of return from a savings instrument to the inflation rate to see how remunerative a particulars investment is in terms real rate of return. As is clear from the table above, on a post inflation basis, Bank FDs are not very remunerative at the prevailing rates of interest. So give the FDs a miss for know. Monthly Income Plans (MIPs) are an attractive option if you have a tenure of 1.5 years & have tradinally given double digit returns with a minor exposure to equity.
(http://www.myiris.com/shares/company/ceo/showDetailInt.php?filer=20100828195201194&sec=ifa).
For Salaried employees
So, if you are salaried, invest the maximum possible allowed to you in EPF this year (as it shall guarantee a 9.50% pa return for you), the balance amount can be deployed in variety of Mutual funds (including Tax Saving Mutual Funds or ELSS) based on your investment tenure. Consider MIPs & equity diversified mutual funds for better returns. Give the PPF & Bank FDs a miss for this financial year.
For Self employed
If you are self employed professional or a businessman, EPF is not available to you. Your next best risk-free investment is PPF (@ 8% pa tax free). However, if the only purpose of investing in PPF is to save tax, then I would suggest that you skip PPF for the next 2 financial years & invest in Tax Saving Mutual Funds or ELSS (http://niravpanchmatia.blogspot.com/2010/09/tax-saving-mutual-funds-or-elss.html). Click on the link to find out why I am asking you to skip other avenues u/s 80C this financial year & stick to ELSS.
Sound Investing !!!!

Tax Saving Mutual Funds (or ELSS)

Tax Saving Mutual Funds (or ELSS): Grab them with both hands before they go away

One of the best tax saving instruments available today might not be available 2 years from now. You guessed it right; I am talking about “ELSS or Tax Saving Mutual Funds”. 
 

Imagine a product that helps you save tax, has a minimum lock-in of a mere 3 years, has given average annualised returns of 15 to 18% pa consistently over the past decade and offers lot of flexibility & above all is tax-free. You should not miss this product for anything. Now this product is available only till Mar 31, 2012. Read further…..

In the recently announced Direct Tax Code 2010, the FM has removed most investment avenues available today u/s 80C like ELSS, ULIPs, NSC, KVP, 5 year Bank FDs & even Senior Citizen Savings Scheme (SCSS). All insurance plans except for Term Plan are out. After April 1, 2012, under the DTC 2010, only the following 4 instruments would be available to save tax u/ch VI; namely; 1. All forms of Provident Funds (PPF, EPF & GPF) 2. The New Pension Scheme ( NPS) 3. Pure Term Insurance Plan (without any Investment component) 4. Any other Govt. approved fund

As is clear from the above, most investment avenues available today u/s 80C will not be available under The New Direct Tax Regime starting from April 1, 2012. And one of the most profitable investments amongst these is ELSS or “ELSS or Tax Saving Mutual Funds”. Have a look at the table below where we have compared the performance of the 10 top performing Tax Saving Mutual Fund schemes with other investment avenues like PPF, Bank FDs & Insurance plans over a 5 year period. 

Tax saving Mutual Funds (ELSS)	Actual Returns over various periods				Value of Rs. 1 lac invested 5 years ago
	1 Year (%)	2 Years (%)	3 Years (%)	5 Years (%)
ELSS Scheme 1	33.3	31.5	18.6	21.6	266,088
ELSS Scheme 2	19.2	20.7	13.7	21.2	261,309
ELSS Scheme 3	37.7	37.7	19.3	21.0	258,839
ELSS Scheme 4	40.9	29.1	13.8	20.0	248,728
ELSS Scheme 5	27.4	21.6	7.0	19.1	239,841
ELSS Scheme 6	32.0	23.2	12.5	18.9	237,135
ELSS Scheme 7	22.5	17.4	7.2	17.9	228,098
ELSS Scheme 8	22.4	17.4	7.2	17.9	227,905
ELSS Scheme 9	44.1	31.1	11.8	17.8	226,555
ELSS Scheme 10	36.3	22.2	10.2	16.4	213,864
Average	31.6	25.2	12.1	19.2	240,385
Maximum	44.1	37.7	19.3	21.6	266,088
Minimum	19.2	17.4	7.0	16.4	213,864
PPF	8.0	8.0	8.0	8.0	146,933
Bank Fixed Deposits	7.5	7.5	7.5	7.5	143,563
Insurance - Money Back & Endow.	6.5	6.5	6.5	6.5	137,009

The best performing Tax Saving mutual fund has given a performance of 21.6% per annum year on year for the past 5 years & the average performance of top 10 tax saving mutual funds is 19.2% per annum. Even the worst performing tax saving fund has given annual returns of 16.4% pa over last 5 years. Now compare the performance of Tax Saving mutual funds with other tax saving instruments like PPF, 5 year Bank FDs & traditional insurance plans like money back & endowments. The table below gives the value of Rs. 1 lac today had you invested in these avenues 5 years back.

ELSS Scheme	5 Years (%)	Value of Rs. 1 lac invested 5 yrs. ago	Current Value times your investment
Best Performing Tax Saving mutual Fund (ELSS )	21.6 % pa	266,088	2.66x
Average performance of ELSS Schemes	19.2 % pa	240,385	2.40x
Worst Performing Tax Saving mutual Fund (ELSS )	16.4 % pa	213,864	2.13x
PPF	8.0 % pa	146,933	1.46x
5 year Bank Fixed Deposits (FDs)	7.5 % pa	143,563	1.43x
Insurance - Money Back & Endowment Plans	6.5 % pa	137,009	1.37x

As is clear from the table above, if you had invested Rs. 1 lac 5 years back in the top performing tax saving mutual fund, current value of your investment would be Rs. 2.66 lacs; a return of 2.66x times. Even the worst performing tax saving mutual fund has given a return of 2.13x times. Compare this return to a PPF or Bank FDs or insurance plans where the return is 1.46x times, 1.43x times & 1.37x times respectively.

Other Advantages of Tax Saving Mutual Funds or ELSS:

1. After the abolition of Entry Load wef Aug 1, 2009, you do not pay any commission to your mutual fund agent. As a result, entire amount of your investment gets invested in mutual funds. Compare this with a ULIP plan where you pay as high as 20 to 40% commission to the agent for no additional benefit at all. 2. You can invest in tax saving mutual funds or ELSS in 2 ways or a combination of these; a) you can invest lumpsum amount at one go anytime within the financial year & b) you can start a Systematic Investment Plan (SIP) in any tax saving mutual fund scheme of your choice or c) you can invest via a combination of the above two. 3. There is a mere 3 year lock-in in tax saving mutual funds or ELSS. This is the minimum lock-in period amongst all tax saving instruments u/s 80C.

Tax Saving Instrument	Expected Return (%)	Lock-in period (Years)
Public Provident Fund (PPF)	8% pa	15 years; partial withdrawal from 7th yr
NSC , KVP etc.	8% pa	6 years
5 year Bank FDs	6.5% pa	5 years
ULIP*	12 to 15% pa	5 years
Insurance Plans	6 to 7% pa	Depends; min 5+ years
Tax saving Mutual Funds or (ELSS)*	15 to 18% pa	3 years

*market linked; average performance over past years

4. There is zero tax on capital gains from tax saving mutual funds or ELSS4. There is zero tax on capital gains from tax saving mutual funds or ELSS

Also, the DTC 2010 comes into effect from April 1, 2012. This article is written in Sep 2010. We thus have exactly 18 months to invest in Tax saving Mutual Funds (ELSS). After that, this wonderful tax saving instrument would no more be available. Or in other words, you have only 2 Financial Years left (FY 2010-11 & 2011-12) to invest in this instrument.

Starting April 1, 2012, under the Direct Tax regime, as already discussed earlier in this article, there is hardly a equity linked instrument available that has a successful history of giving double digit returns. we shall therefore be forced to invest in a PPF, or a NPS or buy a Term plan to save tax. so postpone your traditional investment by 2 years & invest the maximum possible amount for the next 2 financial years in Tax saving Mutual Funds (ELSS).

Just one caveat. There are around 27 Tax saving Mutual Funds (ELSS) available in the market today. Not all of them are performing well. So please consult a Mutual Fund Expert (your next door distributor/agent might not be the best guy) to help you choose the best Tax saving Mutual Funds (ELSS) schemes for you.

Happy Investing!

A Financial Planner decodes The Direct Taxes Code (DTC) 2010 Sep 01, 2010

A Financial Planner decodes The Direct Taxes Code (DTC) 2010

Sep 01, 2010

The Direct Taxes Code 2010 (DTC) 2010 became a reality after good 50 odd years on Aug 31, 2010, when the FM introduced the bill in the parliament. The Income Tax Act 1961 as well as The Wealth Tax Act 1957 has finally been replaced by The Direct Taxes Code 2010. So how have things changed for the average Indian after 50 years?

Well, not much.

The original DTC Draft

When the 1st draft of the DTC was proposed almost a year back, it raised great expectations as it was supposed to herald a new era of direct taxation. The IT slabs proposed were unthinkable, unimaginable even a year back.

The corporate tax rate was proposed to be reduced in one shot from the present 33% to 25% and this move was applauded by one and all. The IT slabs proposed for individuals were supposed to be path breaking. 30% tax bracket was applicable only if your total income exceeded Rs. 25 lacs. Up to Rs. 3 lacs deduction from gross total income was proposed to be allowed.

There were also a few proposals in the original draft that ruffled a few feathers especially in the corporate world and faced lot of resistances. The Minimum Alternate Tax (MAT) was proposed on assets as against book profits and was opposed tooth and nail by the corporate. Another proposal that created disturbances was the proposal to levy tax on long term capital gains which otherwise was tax free. One more concern was that Rs. 1.50 lacs deduction available for interest payments on home loan. It was feared that this deduction might go way.

Final avatar of The Direct Taxes Code (DTC) 2010

When on Aug 31, 2010, the final avatar of DTC 2010 was revealed, some dreams got shattered and some nightmares thankfully did not come true. The biggest dream that got shattered was the revelation of the new Income tax slabs that would be effective April 1, 2012. Have a look at the graphic below.

Personal Income Tax Rates for Individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI):

Income Tax Rate (%)	Current under The Income Tax Act’ 1961	As proposed in the 1st DTC draft (Aug 2009)	As per the final DTC  2010 (Aug 2010)
Basic exemption limit – Male assesses	Rs. 1.60 lacs	Rs. 1.60 lacs	Rs. 2.00 lacs
Women assesses	Rs. 1.90 lacs	Rs. 1.90 lacs	Rs. 2.00 lacs
Senior Citizens	Rs. 2.40 lacs	Rs. 2.40 lacs	Rs. 2.50 lacs
10 % tax bracket	Up to Rs. 5.00 lacs	Up to Rs. 10.00 lacs	Up to Rs. 5.00 lacs
20% tax bracket	Rs. 5.00  to 8.00 lacs	Rs. 10.00  to 25.00 lacs	Rs. 5.00  to 10.00 lacs
30% tax bracket	Above Rs. 8.00 lacs	Above Rs. 25.00 lacs	Above Rs. 10.00 lacs
Deductions from Gross Total Income	Rs. 1 lac (Sec 80C)+ Rs. 15,000 (Sec 80D)+ Rs. 20,000 (Infra Bonds) = Rs. 1.35 lacs total dedn.	Rs. 3 lacs	Rs. 1.50 lac (Sec 80C)
Corporate Tax Rate	33% (including cess & surcharge)	25%	30% (net)

As is evident from the table above, as per the draft DTC proposal of Aug 2009, one would fall in the 30% tax bracket only if your Gross Total Income exceeds Rs. 25 lacs. This would have been an extraordinary move had it been approved. Approximately 90% of Indian Income Tax payers would have fallen in either 10% or 20% tax bracket which would have improved tax compliance and consequently Govts’ revenues from direct taxes as history shows that whenever the Govt. has reduced taxes, tax compliance has improved and has resulted in increasing revenues for the Govt. coffers.

Unfortunately the final code of Aug 2010 revealed that with a Gross Total Income of mere Rs. 10 lacs, one falls in the 30% tax bracket. This is a mere Rs. 2 lacs increment over the existing tax slab as per The Income Tax Act 1961. The question that comes in mind is that this slight change could have been made in the next year’s budget. Why the need for a Direct Tax Code.

Again, the total deductions from Gross Total Income that are allowed today as per The Income Tax Act, 1961 add up to Rs. 1.35 lacs. This was proposed to be increased to Rs. 3 lacs in the Draft DTC of Aug 2009. Unfortunately, there was disappointment on this front as well. The total deductions have been marginally increased by just Rs. 15,000 from Rs. 1.35 lacs currently to Rs. 1.50 lacs as proposed in The DTC 2010. Again, why the need for a Direct Tax Code to implement a minor change.

Another disappointment is the drastic reduction in the choices available to an average Indian to claim deductions from Gross total income. While the current Income Tax Act offers a wide array of savings & investment products to choose from based on an investors profile like PPF, NSC, KVP, 5 year Bank FDs etc. for the risk averse investors; Tax Saving Mutual Funds (or ELSS) & Insurance Plans & ULIPs for those who want to have market exposure and also a deduction for principal repayment of home loans and additional deduction of Rs. 20,000 for infrastructure bonds.

Unfortunately, and this is one of the biggest disappointment from the DTC 2010 from a financial planner’s perspective that the proposed set of savings & investment avenues allowed under The DTC 2010 is just half of the choices already available today. Have a look at the graphic below:

Also, while currently, women assesses are given preferential treatment by having a higher exemption limit of Rs. 1.90 lacs v/s Rs. 1.60 lacs for male assesses, The DTC 2010 has removed this distinction and has a common exemption limit of Rs. 2.00 lacs for both male & female assesses. This comes as a disappointment for the women.

Comparison of Deductions allowed:

Types of Deductions available	Currently under The Income Tax Act 1961	As proposed in The DTC 2010
Traditional savings instruments	PPF, GPF, EPF, NSC, KVP, 5 year Bank FDs, Post Office Schemes etc.	Approved Funds like PF, GPF, EPF, PPF etc, superannuation or gratuity funds, Pension Funds & other funds approved by the GOI.
Market Linked Investments	Tax Saving Mutual Funds (or ELSS) & ULIPs	None
Pension Schemes	The New Pension Scheme (NPS)	The New Pension Scheme (NPS)
Expenditure allowed	Tution Fees of max. 2 children & Repayment of Home Loan principal	Tution Fees of max. 2 children only
Medical Premia	Available separately u/s 80D with a limit of Rs. 15,000 over and above Rs. 1 lac available u/s 80C (Rs. 20,000 in case of Mediclaim for parents who are senior citizens)	Medical Premia payments made for family clubbed with other deductions & no separate limit given
Life Insurance	Life Insurance Premia payable for insurance policies of family allowed; all products	Premia payable on only pure life insurance policies (where amount of premium paid < 5% of sum assured) allowed.
Infrastructure Bonds	Investment in Infra bonds issued by infrastructure NBFCs approved by GOI up to a max of Rs. 20,000 over and above Rs. 1 lacs u/s 80C & Rs. 15,000	No deductions for Infra Bonds
Interest expenses on Home Loan	Deduction up to Rs. 1.50 lacs allowed	Deduction up to Rs. 1.50 lacs allowed
Total Deductions allowed >>>	Rs. 1.35 lacs + Rs. 1.50 lacs = Rs. 2.85 lacs	Rs. 1.50 lacs+ Rs. 1.50 lacs = Rs. 3.00 lacs

As is clear from the above table, the incremental deduction allowable under The DTC 2010 over the existing Income Tax Act is mere Rs. 15,000. Much ado about nothing…

Also, a whole host of investment avenues like NSC, KVP, Post Office Schemes, 5 year Bank FDs, Tax Saving Mutual Funds, and Insurance plans are no more eligible for tax deductions.

From more than a dozen savings and investment avenues available today, the DTC 2010 proposes to reduce the choice to less than half a dozen. This according to me is the biggest disappointment from the retail investor’s perspective. A wonderful investment avenue like Tax Saving Mutual Funds (or ELSS) no more figures in the allowable deductions. Even traditional favorites like NSC, KVP, Post Office Schemes do not have a mention in The DTC 2010.

One pain area though is the levy of 5% dividend distribution tax (DDT) ie; dividends paid by companies on shares as well as dividend payments by mutual funds shall both be subject to a 5% dividend distribution tax (DDT). As of now, dividends are tax free. This move was uncalled for as many investors, especially senior citizens, currently invest in Mutual Funds so as to earn regular dividend income from them for their daily needs. This dividend income will now be affected adversely.

So what is good about The DTC 2010

However, there is a silver lining in The DTC 2010. Certain nightmares did not come true. The biggest nightmare was disallowing the Rs. 1.50 lacs deduction for interest payments on home loan. The stock market was terrified at the prospect of levy of a tax on long term capital gain which as of now is tax free. Fortunately, both the above nightmares did not come true. The deduction of up to Rs. 1.50 lacs for interest payments on home loan is going to be allowed under The DTC 2010 & long term capital gains continues to be tax free under the DTC regime. There was one more positive surprise in the DTC. The reduction in rates levied on Short Term Capital Gains (STCG).

As of today, STCG are taxed @ 15% irrespective of our tax slabs. Thus a person in 10% tax bracket is taxed @ 15% on his STCG as also a person who is in 30% tax bracket. This was not being fair with the guy in the 10% tax bracket. This anomaly has now been done away with in The DTC 2010. Have a look at the graphic below.

Taxation of Capital Gains

Particulars	Currently under The Income Tax Act 1961	As proposed under The DTC 2010
Tax on Short Term Capital Gains
10% tax bracket	15%	5%
20% tax bracket	15%	10%
30% tax bracket	15%	15%
Tax on Long Term Capital Gains	Tax free	Tax free

As is evident from the table above, under The DTC 2010, you shall now have to pay a much reduced tax on you Short Term Capital Gains @ 50% of your tax bracket. This is a very welcome move and the FM should be applauded for the same.

Conclusion

When the current congress Govt. took charge, an ambitious Minister announced mega plans of building 20KMS of National Highway every day. We all know what the reality is today and are aware of the huge gap between actual road building and mega plans announced then.

Something similar has happened with The Direct Taxes Code 2010. It was announced in Aug 2009 with great fanfare and promises of a new era in direct tax collection. Exactly 1 year later, The DTC 2010 has turned out to be a big dampener and looks like the twin brother of the existing Income Tax Act 1961 and nothing more. In our opinion, The Direct Tax Code 2010 is an opportunity missed and the only plausible reason seems to be the lack of political will. One more minister succumbs to political pressure and fails to walk along the unbeaten path.

To sum up, the New Direct Taxes Code is Very Old Wine in not so New Bottle……

Insurance is the subject matter of solicitation

Insurance is the subject matter of solicitation

April 7, 2009

Next time when you come across an advertisement by an Insurance company, read carefully. You shall come across the following disclaimer that says “Insurance is the subject matter of solicitation”. Ever wondered what this term means? As a consumer , this disclaimer/warning is of utmost importance but often ignored.

According to the dictionary, the meaning of the term “solicitation” is " to ask for". Therefore,the above disclaimar essentially means that insurance has to be requested or asked for, not sold ie; you should be the one calling an insurance agent asking him to sell you a particular policy of your choice and not the other way round. Unfortunately, in real life, the case is exactly the opposite. Traditionally, in India, people buy insurance products not because they need them, but because they are goaded to buy a policy to please a neighbour, relative or a friend who is also an insurance agent.

The above disclaimar is extremely important as it puts the responsibility for selecting the right product on the consumer rather than on the company or the agent. But we know that most of the consumers are not aware about either their needs or the various options available before them. Hence the consumers have to obtain the help from a trained financial planner/advisor who will " advise " him/her in choosing the right insurance product.

Here is the list of some of the questions one should ask the insurance agent before being sold an insurance policy.

1. Is the agent qualified or authorised to suggest me a financial product?
2. Am I presently under Insured or over Insured?
3. What Insurance product will suit my needs the best and what are its features?
4. What shall be my financial commitments if I buy a particular policy like premium amount, premium paying term, frequency of payment etc.?
5. What differentiates this Insurance product & how does it compare with other products in the market?
6. Do I really need this product?

We think that asking such probing questions will help you better understand the reason why you’re buying a policy and whether it’s for savings, tax rebate, life insurance or long-term wealth creation. If you ask us, your insurance policy should serve all these purpose at the same time.

Also, it pays to have a basic knowledge about the type of insurance products. Insurance products are basically of following 4 types:

1. Term Plans
2. Money Back Plans
3. Endowement Plans
4. Unit Linked Insurance Plans (ULIPs) Plans

Term Plans are pure risk cover insurance products that do the job of insuring your lives against death with zero maturity value ie; in case you survive the policy term, you will not get anything. There is no investment element here. Only in case of the insured dies during the policy term does the family get the sum assured (the amount of insurance cover). So why should you go for this plan. Because this is the only pure insurance product that does exactly what a life insurance product should do; provide your family the much needed financial security in case of your untimely death. Also, this is the cheapest category of life insurance product that money can buy.

Beside term plans, all the other types of insurance products are insurance cum investment products with some variations. While Money back plans are generally with-profit plans that aim to provide a return on your investments at regular intervals over the policy term, endowment plans on the other hand aim to create a corpus for you at the end of the policy term. Money back schemes provide for periodic payments of partial survival benefits as follows during the term of the policy, of course so long as the policy holder is alive. An endowment policy on the other hand makes provisions for the family of the life assured in event of his early death and also assures a lump sum at a desired agewhich can be reinvested to provide an annuity during the remainder of his life or in any other way considered suitable at that time.

ULIPs as the name suggest is the modern avatar of the Investment cum insurance product offering the investor a variety of investment options to choose from. So why not go for ULIP that offers insurance as also investment option. ULIPs by their very nature are very long term products and are beneficial only if you are willing to stick out for a minimum of 15 to 20 years with the product else they prove to be extremely costly in the short run. As for the other investment cum insurance products, while they might involve a savings element, yet all these plans prove to be much costlier compared to a term plan and as a result might not allow you to buy enough insurance.

So what’s the solution? Well, we firmly believe that if there is one insurance product you are going to buy then let it be a pure risk cover TERM PLAN with adequate amount of insurance. Adequate amount of life insurance varies from person to person and depends on a number of factors including your standard of living, age , no. of dependents , income level, your existing savings & so on. Consult a financial advisor to find out the right amount of insurance for you & your family.

As for your investing needs, we believe that the mutual fund industry along with the small savings schemes like PPF, Senior citizens schemes & Bank Fixed Depsoits offer good enough options to suit every individuals profile & financial goals. They are cheaper & offer liquidity & flexibility as well & can also cater to one’s tax savings requirement.

So keep it simple. As far as possible, do not mix insurance & investment. This rule will allow you to buy adequate insurance cover for your family keeping your premium low thus allowing you to save & invest the spare money for meeting most of your financial goals.

INSURE ADEQUATELY & INVEST WISELY!!!!!

(Mr. Nirav Panchmatia is a financial planner practicing under his firm “AUM Financial Advisors”. He is a CA & MBA Finance from Narsee Monjee, Mumbai having spent last 8 years in Mumbai working in leading financial institutions like Citigroup, ICICI Bank, IRIS, etc. He can be reached on 93237 39968 or on his email: nirav@aumfinancialadvisors.com. The above article is meant for general reading only)

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Six basic questions that every Investor should ask himself NOW (20 Jan 2009)

Six basic questions that every Investor should ask himself NOW

Jan 20, 2009

1. Why Save & invest at all? We do not earn just to meet our daily expenses. We earn so that we can lead a relaxed life & are not financially dependent on others. The amount that we SAVE after meeting our daily expenses needs to be invested judiciously so that we can meet our future expenses. Again, all of us have some kind of financial goals, may it be buying a house, corpus for our retirement, funding children's higher education & marriage, maintaining & upgrading our standard of living etc. We need to INVEST to help us achieve our financial goals. Do you already have enough and do not feel the need to save. Well, I hope you have taken inflation into account. Assuming inflation at an avg. rate of 8% pa, your Rs. 1 crore today would be worth approx. Rs. 29 Lacs, 19 lacs & Rs. 13 lacs respectively at the end of 15 Yrs, 20 Yrs & 25 Yrs from today.

2. Why should I insure myself? Even before you start investing, I would suggest that you buy insurance from your savings and only then think of investing. The reason is not far to seek. We all are well capable of taking good care of our family while we are there for them. But what if something happens to us? Have we made adequate financial provision to ensure that our family is not in trouble financially in our absence? INSURANCE comes to our rescue in such an eventuality.

3. Where to Invest & how long should I remain invested? A million dollar question indeed. Where to invest is a function of your age, your risk taking capacity, liquidity position, your financial goals etc. However, there is one thing you should never do and that is to invest in a haphazard manner. Fortunately for all of us, there is a no. of investment products available in the market today to suit all pockets and profile. The trick is to "prepare the shopping list first & then go out shopping & not do the other way round". We should normally remain invested till the time we have not achieved our financial goals.

4. What type of Insurance should I buy? A billion dollar question. Two types of insurance are a must for most of us. First is Life Insurance & the 2nd is Medical Insurance (or Mediclaim). Pure risk cover Term Plans are the best & the cheapest form of life insurance. A floater mediclaim policy if you are married is a must. Take separate cover for dependent parents.

5. Whom should I go to for investment advice? If investing is such an important activity in our lives, why leave it to chance or in the hands of a not so well informed agent. And with such a wide variety of financial products available in the market today, it is becoming more and more difficult to choose the right product. In such a scenario the role of a financial planner, who is an expert on all matters of investing & insurance, cannot be over emphasized.

6. How to choose the right financial advisor? Never fail to check out your advisor's credentials before you trust him with your hard earned money. First and foremost, check out his qualification & work experience. Then, find out how he is going to benefit from you ie; his method of charging you. Is it purely commission-based or is he going to charge you a fee. Remember, it would be extremely difficult for your advisor to be unbiased if major portion of his earnings is coming from commissions. Do not hesitate to enquire about his family background if need be.

7. Is this the right time to even talk about Investing? Yes I know the title says six questions only. But is not our mind pre-occupied with this question right now? NEVER even attempt to TIME the market because it is a thankless job. NOW is the best time to invest. And considering the discounted prices at which blue chip Indian companies are available in the market today, the downside seems limited with considerable upside.

This article recently appeared in the Times Of India

(Mr. Nirav Panchmatia is a Financial Planner practicing under his firm “AUM Financial Advisors”. He is a Chartered Accountant (CA) & MBA Finance from Narsee Monjee, Mumbai and has worked for the past 8 years in leading financial institutions like Citigroup (Investment Banking), ICICI (SR. Manager – Subsidiary Business) & IRIS (Analyst) etc.

Death & Taxes!!! (03 Feb 2009)

Death & Taxes!!!

Feb 03, 2009

Death & Taxes are the only two things that are certain in this world. And yet we fear them both.

While we do not have a solution for your fear of death, we can definitely help remove your fear of taxes. Read on---

A major time consuming activity for every Indian, tax planning gives sleepless nights if not done properly & especially if postponed till last minute. Adding to the misery is the complexity & dynamism of the Income Tax Act that changes every year and requires one to be in touch with the latest developments. Further, there are a few mis-conceptions in the minds of common man surrounding tax planning that add to the misery.

Tax planning myths

• I invest only to save tax
• I buy Insurance only because I need to save taxes
• PPF / NSC are still the best tax planning instruments available
• Unit Linked Insurance Plan's (ULIPs) are good for tax planning & give great returns as well
• Rs. 100,000 is the maximum I can invest to save taxes
• Repayment of loans do not qualify for any tax deduction
• Tax planning needs to be done only at the end of the year around Jan-March

The right approach Tax planning investments have to be planned in a way that it helps you create WEALTH and in the process help you reduce your tax liability. Further, your risk taking capacity & asset allocation should decide what tax planning instrument you choose. Last minute rush to buy insurance or investing in PPF disregarding your actual needs is not the right approach towards tax planning. A good financial advisor can help you decide on the right tax planning instruments for you based on your financial goals.

Steps to tax planning First step in your tax planning exercise, if you have a home loan, is to figure out the principal & interest component of your home loan because the amount of principal that you repay in a financial year qualifies for Sec 80C deduction (subject to Rs. 100,000 limit). Also, interest paid in a financial year on your home loan qualifies for deduction under Sec 24 subject to Rs. 150,000 limit. If you are already repaying principal exceeding Rs. 1 lac in a financial year, there is no need to make further tax saving investment u/s 80C.

Next step is to figure out your existing commitments towards Insurance, Pension plans or other tax saving instruments like ELSS, PPF,NSC, Infrastructure bonds etc. Tution fees of 2 of your children is also eligible for deduction u/s 80C.

Insurance & tax planning If you have still not exhausted your limit under Sec 80C, then give preference to pure risk cover Term Plan, if you do not have one already or if you are insured but the cover is not enough. ULIP's are not advisable as these are very expensive & do not offer enough liquidity or insurance cover. One should buy Life Insurance if you are not adequately covered & not for the sake of saving taxes because once you buy insurance, you have bound yourself to a commitment to pay a certain amount throughout the premium paying term.

Tax planning, your risk profile & asset allocation The balance, if any, should be invested in a way that allows you to achieve your financial goals & suits your risk profile. If you are an investor not willing to take risks & happy with 7 to 8% returns, then assured return schemes like Public Provident Fund (PPF), National Savings Certificate (NSC) & tax-saving fixed deposits are the ones for you. If you are aiming for higher returns & willing to take higher risks, then Equity Linked Savings Scheme (ELSS) is the best option for you. But remember that ELSS or tax saving mutual funds are market linked and you need to stay invested for at least 5+ years to get good returns (lock-in only for 3 years). Investment in ELSS done via Systematic Investment Plan (SIP) helps you distribute your tax burden over 12 months which is better than having to pay the entire amount in Jan-Mar.

Some Investments eligible U/s 80C of The Income Tax Act, 1961

Investment Options	Returns	Treatment of Income	Liquidity
PPF/EPF	8% pa	Tax free	Withdrawals allowed after 6 years
NSC	8% pa	Added to persons income for that year	Matures in 6 years
Bank FDs (> 5 Years)	8 to 9% pa	Added to persons income for that year	Lock-in for 5 years
Pension Plans	7-8% pa	Added to persons income for that year	Payable on retirement
Insurance Premia (Endowments, Moneyback etc)	6-7% pa	Tax free	Payable on maturity
Insurance (ULIPs)	6 to 15% pa*	Tax free	At least 3 years
Tax Saving Mutual Funds (ELSS)	15% pa**	Withdrawals and dividends both are tax free	Lock-in for 3 years

* Returns are not assured and depends upon asset allocation ** Returns are not assured but market related although past 5 yrs have given a CAGR of > 15%

Do not limit your tax planning to Rs. 1 Lac u/s 80C Sec 80D allows deduction up to Rs.15,000 yearly in case of premium paid towards medical insurance for self, spouse & dependent children. Additional deduction of Rs. 15,000 (Rs.20,000 in case of parents who are senior citizens) shall be allowed for mediclaim of parents. If you have availed an education loan, then entire interest paid on your loan is eligible for deduction u/s 80E upto eight years. Sec 80G allows deduction in respect of certain specified donations up to 50% of the donation amount (100% in some cases) subject to 10% of your gross total income.

To sum up One of the biggest mistakes that people make is that they invest to save tax. The right approach is to invest for achieving your financial goals keeping your risk taking capacity and asset allocation in mind and at the same time save tax. So choose your tax savings investments wisely. HAPPY INVESTING!!!

(Mr. Nirav Panchmatia is a Financial Planner practicing under his firm “AUM Financial Advisors”. He is a Chartered Accountant (CA) & MBA Finance from Narsee Monjee, Mumbai and has worked for the past 8 years in leading financial institutions like Citigroup (Investment Banking), ICICI (SR. Manager – Subsidiary Business) & IRIS (Analyst) etc.

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CASH is KING is not just a cliché (Oct 2008)

CASH is KING is not just a cliché..

Oct 2008

Cash is king is a very often used expression that refers to the importance of cash flow in the overall fiscal health of an individual, business or even economy.

If you ask us what is the one asset that I would love to hold today, my answer would be CASH. Yes I know cash does not give any return and losses it value to inflation every year, yet I would still prefer to have it today. Simply because this is one asset class that will allow me to buy all other asset classes that are available at bargain prices today.

Cash is king because the availability of cash enables the investor to avoid two pitfalls:

• Selling what's cheap so you can buy what's cheaper.
• Not having enough cash to be able to take advantage of compelling investments opportunity that market throws from time to time

With fear and panic gripping the markets, those with cash will gain immensely by picking bluest of blue chip stocks available at heavily discounted prices that the Indian equity market has to offer today. If you use your cash wisely, the odds are very high that in a couple of years from now you'll be sitting on a handsome profit.

In todays time, when liquidity crisis has engulfed economies the world over, CASH has become the most sought after asset by economies the world over. Even corporates and individuals are yearning for cash.

Last six months or even last one year was probably the time to sit on cash but today is the time to invest with your full might, especially in the Indian equity market. Unfortunately, only those who have cash can take advantage of this wonderful opportunity.

For investors in India, the time to invest your hard earned cash has come.

This Diwali the biggest discount sale is not being offered at Big Bazaar or your local kirana shop but by the Indian Equity market.

So go shopping, but shop wisely.

Happy Investing!!! to all my Indian brethrens.

(Mr. Nirav Panchmatia is a Financial Planner practicing under his firm “AUM Financial Advisors”. He is a Chartered Accountant (CA) & MBA Finance from Narsee Monjee, Mumbai and has worked for the past 8 years in leading financial institutions like Citigroup (Investment Banking), ICICI (SR. Manager – Subsidiary Business) & IRIS (Analyst) etc.

These are the best of time (Nov 2008)

These are the best of times. These are the worst of times.

Nov 2008

The above famous quote from Shakespeare aptly sums up the state of the Indian Equity Market today.

Why are these the worst of times. Well I do not think anybody needs to be convinced about that.

These are the worst of times because -------------------------

• The current generation the world over has not seen a financial crisis of this magnitude before
• The current financial crisis though emanated in US, has impacted the entire world
• Nobody knows for sure whether the bad news is over or there is still to come
• The current financial crisis had eaten up financial institutions like Lehman Brothers, Merrill Lynch, AIG etc. that used to be the epitome of the financial world at one point of time
• Millions of lay investors the world over have seen there portfolio turn red with no sight of recovery anytime soon
• Thousands have lost there homes, especially in US and thousands have lost there jobs
• Most importantly, all the security measures set by regulators the world over have failed miserably and that has shaken the confidence of the common man in the financial system
• Equity as a asset class has performed miserably this year and it would take months if not years for the common investor to turn to this mode of investment again
• The Indian stock market has fallen by more than 60% from its peak in a matter of a few months putting an end to a 4-5 yr long bull run

So is there a silver lining to this cloud?

What is good about the current crisis?

Well for one, its good that this crisis (International financial crisis) unfolded now. Because, the longer it had gone unnoticed, the more severe and deeper would have been the damage.

Two, hopefully and we can all pray for this, the Heads of Govts., the regulators, the people in-charge of financial institutions the world over (and that includes India) would LEARN A LESSON from the present crisis and devise simple to follow and easy to implement regulations that will stop the world from experiencing a similar crisis in future.

Specifically for India and especially the Indian equity markets, I believe this is an opportunity in disguise.

These are the best of times (for the Indian investor at least) because ------------------------

• A correction that was long overdue has finally taken place (although it is the severity of correction that has baffled even the best of experts)
• Shares of the bluest of blue chip Indian businesses are available at attractive valuations of 2-3 years back
• This is an opportune time for investors who had missed the bus , provided you are sitting on some cash now
• The Indian economy is one of the better economies in the world today and only big economy besides china that is expected to clock a 7%+ GDP growth rate
• Most Indian companies are sound and healthy and are expected to tide over the current crises relatively unscatched
• The Indian banking and financial system is quite robust (thanks to our regulators especially the RBI) and is facing a temporary contraction in growth not expected to last too long.

Yes, some bad apples are expected to surface in the months that follow. Especially those companies that had over leveraged themselves or mis-managed there cash position.

But is this not a blessing in disguise? It is in times like these that "Men get differentiated from the boys".

So, hold your cash for some more time, let the fog get a bit clearer and than go out full throttle and bet on the Men out there. You are bound to get handsome returns in future.

Sound Investing!!!!!

(Mr. Nirav Panchmatia is a Financial Planner practicing under his firm “AUM Financial Advisors”. He is a Chartered Accountant (CA) & MBA Finance from Narsee Monjee, Mumbai and has worked for the past 8 years in leading financial institutions like Citigroup (Investment Banking), ICICI (SR. Manager – Subsidiary Business) & IRIS (Analyst) etc.

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New Pension Scheme (10 June 2009)

The good, the bad & the ugly of the “New Pension Scheme”

June 10, 2009

May 1st 2009 would go down as a landmark event in the history of the Indian Financial Sector as it is on this day that the Government launched The “New Pension Scheme” or NPS as it is commonly known.

Highlights of the NPS  will regulate the NPS? Launched by the Pension Fund Regulatory & Development Authority (PFRDA), the proposed regulator for Pension Funds in India, the New Pension Scheme or NPS heralds the beginning of Pension Reforms in India that aims to bring economical, well regulated retirement options to the Indian masses.

Who are the fund managers? Fund Managers are the entities who will invest & manage our pension money. Currently there are 6 Fund Managers to choose from namely, ICICI Prudential, IDFC, Kotak Mahindra, Reliance Capital, SBI & UTI & one has the option to choose between any of these six fund managers as also the option to switch between them once in a year.

What are the Investment options available? The NPS offers you two approaches to invest your retirement money:

1. Active choice
2. Auto choice (Lifecycle Fund)

In the first approach, the investor can choose between 3 investments options depending upon his/her tilt towards equity or debt. A maximum of 50% equity exposure is allowed in the most aggressive option else one can choose the conservative option with minimal equity exposure. However, in case one is unable to make his /her mind on what option is better, one can go for the 2nd approach wherein his/her age decides the equity/ debt allocation.

Where can one apply for buying NPS?

There would be 22 points of presence or entities from which one can buy pension plans. Allahabad Bank, ICICI Bank, Axis Bank, CAMS, LIC, UTI & SBI & all its Subsidiary banks are some of the points of presence where one can apply for the NPS.

Who can apply?

Any Indian Citizen, whether resident or not, who is between 18 & 55 years of age at the time of application can apply for the NPS after fulfilling the KYC norms.

What is the minimum contribution?

Minimum amount per contribution is Rs. 500 & minimum 4 contributions are required per year requiring a minimum contribution of Rs. 6,000 per annum.

Can one withdraw the amount invested in NPS at will?

No. PFRDA has fixed the normal retirement age as 60 years. Accordingly, if wants to withdraw any amount before attaining 60 years of age, one can withdraw a maximum 20% of the amount accumulated (known as pension wealth) & the balance 80% compulsorily gets converted into a pension corpus from which one shall get annuities. After attaining 60 years of age, one has the option of withdrawing a maximum of 60% of the amount accumulated (pension wealth) & the balance 40% gets converted into a pension corpus from which one shall keep getting annuities.

What if the pensioner dies prematurely?

Only in case of unfortunate death of the pensioner, the nominee is allowed to withdraw the entire 100% of the amount accumulated (pension wealth).

The good At last the non-salaried Indian has something to fall back on that shall enable him to save for the rainy day. The NPS launched by the PFRDA had many positives:

1. Choice of 6 Fund managers & flexibility to move between them
2. Choice of 4 fund options & flexibility to move between them
3. Very low cost, economical way of saving for retirement
4. Option of Automatic Asset Allocation based on age
5. Equity Investments to be made only in Index Funds

The bad

1. Fund manager can be changed only once in a year
2. Only 1 switch allowed per year & that too in May only
3. Extremely low on liquidity; cannot withdraw more than 20% of amount accumulated (pension wealth) before attaining 60 years of age & more than 60% after 60 years of age
4. Retirement age fixed at 60 years by PFRDA might not match with individual preferences

The ugly

1. Taxability at the time of receipt of corpus & annuities Both the amount accumulated (towards retirement corpus) & the pension payments or annuities are likely to be taxed at the time of receipt in the hands of the pensioner. This one aspect negates all the good that could have been there in the NPS. Also the rate of taxation would be the pensioners maximum marginal rate i.e.; the rate at which he/she would be paying tax on his/her income in the year of receipt.
2. Very Poor on Liquidity & Transparency While Mutual Fund Schemes are required to declare NAVs on a daily basis, the NPS is not expected to declare its NAV so frequently. The NPS investor would therefore be clueless for the better part of the year as to where he stands as regards his investment in NPS. In such a case, how can he decide whether to switch or not? Another negative is the restriction on partial or premature withdrawals. Premature withdrawals (before 60 years of age) are restricted to only 20% of the pension wealth & even after attaining 60 years the withdrawals are restricted to 60%of the corpus. One is therefore stuck with the plan.
3. There are no assured returns under NPS Unlike PPF & EPF, the existing competitors, the NPS does not offer any assured returns, a must have when one is aiming to create a retirement corpus.

Conclusion Indeed a very bold & necessary step has been taken by our Govt. by launching the NPS, a much awaited, much delayed but necessary step towards providing retirement security to the common man.

Option of six Fund Managers, four investment options to choose from, very low transaction & management costs & the fact that equity money will only be invested in Index funds are the many positives of the NPS.

However, the fact that NAVs are likely to be declared less frequently & add to it the liquidity issue & the fact that the receipts would be taxed take away all the good that the NPS could have offered.

Hopefully, our FM in the forthcoming budget does away with the taxability of pension receipts from the NPS. Else, there are many better options to look out for in the form of PPF, EPF & Mutual Funds or a wise combination thereof.

So do not jump the gun right away & await a better/improved pension scheme in future (sans taxation) that also offers liquidity & transparency. To conclude, the NPS is indeed a SMALL step by the Govt. but a GIANT step for common man.

(Mr. Nirav Panchmatia is a financial planner practicing under his firm “AUM Financial Advisors”. He is a CA & MBA Finance from Narsee Monjee, Mumbai having spent last 8 years in Mumbai working in leading financial institutions like Citigroup, ICICI Bank, IRIS, etc. He can be reached on 93237 39968 or on his email: nirav@aumfinancialadvisors.com. The above article is meant for general reading only)

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No Entry Load on Mutual Funds (06 Oct 2009)

No Entry Load on Mutual Funds: A blessing in disguise for the Indian Investor

Oct 06, 2009

As you might be aware, the Securities Exchange Board of India (SEBI) came out with a new regulation with effect from August 1, 2009 that has an immediate impact on what you pay whenever you buy a mutual fund scheme.

Until now, all purchases of Equity-based mutual fund schemes were subjected to an ‘entry load’ which was typically ranging between 2.25% to 2.50% of your investment in case of existing mutual fund schemes & approx. 3.50% of your investment in case of New Fund Offers (NFOs). This entry load was deducted from the amount that you invested and mostly passed on to your distributor as commission for his service.

Thus if you had invested Rs. 1,00,000 in an equity based mutual fund scheme, then typically an amount of Rs. 2,250 (assuming an entry load of 2.25%) was deducted from your investment and paid to your distributor towards his services & your actual investment amount stood at Rs. 97,750 (i.e. Rs 1,00,000 minus Rs. 2,250). But this was the case before Aug 1, 2009.

As per SEBI’s new ruling regarding abolishing of entry loads, any investment in equity based mutual fund made on or after August 1, 2009 would be free of any entry loads. What this means is that now if you invest Rs. 1,00,000 in equity based mutual fund schemes, your entire Rs. 100,000 would be invested in the scheme of your choice and nothing would be deducted on account of entry loads thus resulting in an absolute saving of Rs. 2,250 on Rs. 1 lakh investment (or around 2.25% of your investment amount).

Table showing the Impact of Entry Load abolition on your Investments

Particulars	Before Aug 01, 2009	From Aug 01, 2009
Your Investment (Rs.)	100,000	100,000
Assumed Rate of Return (CAGR % pa)	18%	18%
Entry Load (%)	2.25%	0.00%
Amount finally Invested (Rs.)	97,750	100,000
Value of your Investment	Before Aug 1, 2009	After Aug 1, 2009	Your Savings*
After 5 Years	223,625	228,625	5,000
After 10 Years	511,600	523,600	12,000
After 15 Years	1,170,435	1,197,435	27,000
After 20 Years	2,677,660	2,739,660	62,000
After 25 Years	6,125,850	6,266,850	141,000

• * Savings because of abolition of entry Loads
• ** For simplification purpose, it is assumed that there are no expense ratio

As is evident from the table above, an Indian investor can end up saving up to Rs. 141,000 on his investment of Rs. 100,000 over a period of 25 years. Not a small saving by any measure.

Now the question arises, what happens to the distributor’s commission? SEBI believes in empowering the investor and says that going forward, the Investor will decide his/her distributors remuneration based on the quality of advice given & service offered by the distributor or advisor. So it pays to choose your advisor wisely.

The approx. amount of 2.25% to 3.5% on his investment that an investor is able to save should be partially channelized by the investor to remunerate his Investment Advisor. Here is what I mean. In the post Aug 1, 2009 scenario, your Investment Advisor (if you have one) from whom you might purchase your Mutual Funds is hardly getting remunerated for his services as entry loads have been abolished and the Mutual Fund company is now forced to pay him/her from their own pocket. A wise investor should therefore choose a good Investment Advisor who is an expert on Mutual Fund matters and who is capable of making the right fund choices for him. However, a good financial advisor will charge you a fee for his expert advice. Should you pay him? The answer is a resounding YES.

You can utilize your saving from entry load to pay for a good financial advisor who would typically charge you fees in the range of 1% to 2% of your Investments. Hence, even though you are hiring the services of an expert financial advisor (something you could not afford earlier), you are still saving approx. 1% to 2% on your investment vis-à-vis before. And if the Investment Advisor that you have chosen can deliver even 2% better return compared to a non-expert, you can make a few lakhs more on your investment. Have a look at the table below.

Probable Impact of choosing an Expert Financial Advisor:

Particulars	Without an Expert	With an Expert Advisor
Your Investment (Rs.)	100,000	100,000
Assumed Rate of Return (CAGR % pa)	18%	20%*
Entry Load (%)	0.00%	0.00%
Investment Advisor’ Fees	0.00%	1.5%
Amount finally Invested (Rs.)**	100,000	100,000
Value of your Investment	Without an Expert	With an Expert Advisor	Additional Gain*
After 5 Years	228,625	245,100	16,475
After 10 Years	523,600	609,850	86,250
After 15 Years	1,197,435	1,517,500	320,065
After 20 Years	2,739,660	3,776,250	1,036,590
After 25 Years	6,266,850	9,396,000	3,129,150

• * It is assumed that the Expert will help you garner at least 2% extra returns (over the tenure of your Investment) compared to a non-expert.
• ** For simplification purpose, it is assumed that there is no expense ratio

Yes, believe it or not, even a 2% pa extra return on your investment delivered by an expert investment advisor can result in an extra profit of Rs. 30 odd lacs on your meager Rs. 1 lakh investment over 25 years.

The moral of the story is: IT MAKES GREAT SENSE TO PAY FOR A GOOD INVESTMENT ADVISOR & UTLIISE HIS EXPERTISE TO GARNER SOME EXTRA RETURN, EVEN AT THE COST OF PAYING HIS FEES. IT IS WORTH EVERY PENNY SPENT. So choose the right Financial advisor & laugh your way to the bank. HAPPY INVESTING.

(Mr. Nirav Panchmatia is a financial planner practicing under his firm “AUM Financial Advisors”. He is a CA & MBA Finance from Narsee Monjee, Mumbai having spent last 8 years in Mumbai working in leading financial institutions like Citigroup, ICICI Bank, IRIS, etc. He can be reached on 93237 39968 or on his email: nirav@aumfinancialadvisors.com. The above article is meant for general reading only)

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