I don't know financial planning - What to do?

Let me list down simple things that everyone must try and do.
Let me list it down as simple financial plan.

- Get a term plan (atleast 5 times your yearly income)
- Have an emergency fund (in some liquid MF)
- Invest in fixed deposits (like FD/NSC etc)
- Create a PPF account for long term plans and invest yearly
- Check your asset allocation and do put some form of gold in your portfolio (physical,MF,ETF)
- Invest in equity MF (use sites like www.valueresearchonline.com, www.morningstar.com etc)
Remember, equity returns will always outperform fixed return schemes
- If you can understand the market, invest in Stocks directly


If you can't understand market and don't want to take the pains to go through sites to look at MF ranks, just but index MF/ETF

Do the above and atleast you are better off than no plan at all.

What do you think?

PPF - Little more details

Since my last post was on PPF, I think this detail may be of a lot of help for folks looking to invest via PPF.

As per PPF laws
Interest in your PPF account is calculated on the lowest balance between the close of the fifth day and the last day of every month and is credited to the account at the end of each financial year i.e., on 31st March. So if you invest by the 5th of the month, you will be eligible to interest for the full month in which you are investing

What this means is that if you invest by the 5th of a month, you will get full interest for the month.

If you have a lumpsum and if you invest it before 5th April, you will get the interest for the full year.

Thoughts?

Some folks even mention of doing a partial withdrawal a portion from the PPF every year from the 7th year onwards and reinvest it back. This way they don't put new cash.

I will however not advice this because I think one should look PPF for a long term savings (for retirement or child investment)

PPF vs NSC

Lots of people look at both NSC and PPF as tax saving instruments.

However, it can also be look at investments for long term goals (retirement, child education).

Lets compare them both:

PPF gives you returns of 8.8% tax free with a lock in for 15 years.

NSC has two variants:

5 years @ 8.6%

10 years @ 8.9%

So, with NSC you do have the option to choose a lower term if you don't want to lock in your funds for 15 years.

However, the game changer is the tax component.

NSC returns is taxable.

PPF returns is not.

Please note this does not imply that one creates as many PPF accounts as possible.

You can create PPF accounts for your kids as well...but as per PPF norms one will not get interest for more than 1L deposit (including sum of all PPF accounts). However I know folks who may claim otherwise.

PPF returns are not fixed. They are governed by Govt and it can change it yearly.

NSC returns are fixed for now and once you make an NSC you can rest assured of the interest rate.

What will you choose?

Obviously there are many more choices like FD, MF  but lets keep that comparison for a different post.

This post is more for comparing NSC and PPF.

What will you choose?

Ir-respective I will always advice a person to open a PPF and look at it from a long term perspective.

Mutual funds to look at for Investing

I think its easy to research on MF these days.

Go to valueresearchonline.com
OR
http://www.morningstar.in/funds.aspx
OR
http://www.mutualfundindia.com/

Let me list down some funds that have performed well in the past

Please note: Past performance has no relevance to the future (but used for ratings etc)

ICICI Prudential focussed blue chip
SBI Magnum emerging fund (very good returns - part of small and mid cap fund)
HDFC Top 200 (has been a reliable performer - but there are funds with better returns)
ICIC Prudential Discovery
ICIC Prudential Dynamic
DSPBR Top 200

Sector specific:
Reliance Pharma
Reliance Banking
SBI Magnum FMCG fund

Balanced: (Any one of the below)
HDFC Balanced Fund
ICICI Balanced
HDFC Prudence


What do you think?

Rule for budgeting and planning?

Is there a rule for budgeting and planning?

I have followed and tweaked the 50-30-20 Rule as follows:

50% of your take home income for essential expenses (home loan, car loan, education, groceries etc)
30% of your take home income should be kept aside for investments (savings + retirements + investments)
20% of take home for lifestyle expenses (credit cards, mobile expenses, gym, movies etc)

If you have an additional source of income or bonuses etc, try and put them in the investment bucket.

e.g
Take home 1L per month

Keep
50K for essential expenses
30K for investments
20K for lifestyle expenses

Makes sense?

Planning funds for your children

Do the below make sense for children's future planning?

Mutual funds:
If we can get a MF which gives

- 10% return annually, then by investing 7750 per month, we can get a crore in 25 years.
- 12% return annually, then by investing 5625 per month, we can get a crore in 25 years
- 15% return annually, then by investing 3450 per month, we can get a crore in 25 years.


PPF:
Make a PPF account for your child.
It gives 8.7% yearly.
Lock in period of 15 years
Max - 1L
Parent will not get tax benefit if he/she already has a PPF in their name (max of 1L tax benefit - all accounts summed up together)

What are your thoughts on the same?

Recurring Deposit - Planning for retirement

Did you know that recurring deposits can be a good investment option for retirement?
Many banks have deposit rates ranging from 8-9.5%

If one invests
17k per month in an RD giving 8.5% - in 20 years the person would have a crore
50k per month in an RD giving 8.5% - in 10 years the person would have close to a crore

Use the crorepati calculator at
http://wealth.moneycontrol.com/jtcrorepati.php
for the same.

This is a safe investment option and obviously one needs to check on tax on the same.

Just one of the options if people want to consider.

What do you think?

Edited 30th March 2015:
Added another article on generating a monthly pension using RDs