TIMES NEWS NETWORK

Every responsible personthinks about a secured fi-nancial future for his/herfamily. However, acting tosecure the financial future

one needs to plan in advance. Here aresome steps that could help you towardsfinancial freedom in the future.

SALARIED AND WORKINGINDIVIDUALSManage expenses: Financial advi-sors say expenses are the backboneof an individual’s financial plan-ning. To spend judicious-ly, learn the difference be-tween needs and wants.Once you know the dif-ference, it becomeseasy to control unnec-essary expenses. Re-member, as you manage yourexpenses, your savings would in-crease which could be investedsmartly for wealth cre-ation in the long run.

Identify financial goals:Zero in on financial goals and setdeadlines for each of the goals.The next steps are to measurethose goals and regularly check yourprogress. Be flexible for course cor-rection in case of any divergence fromthe planned course.

Buy risk covers: Have adequate in-surance to protect those who are de-pendent on you financially. Buy a lifeinsurance plan. Also have health cov-er for the whole family and insure yourhouse.

Don’t sign any papers without un-derstanding the basics: A large num-ber of investors depend on friends,family members, colleagues and oth-ers for investing. If you don’t have anyexperience of investing, at least try tounderstand the basics before you signon the check.

Take calculated risks, not blindones: You should not be afraid to takerisks but should not invest based ontips. Aversion to risks could also bedue to lack of understanding of in-vestment products. So try to under-

stand the basics of investing and fi-nance.

Don’t fear numbers:Often women are foundto be fearful of numbers,

which eventual-

ly lead them to depend on others fortheir financial decisions. Womenshould not fear numbers but shouldbe in-charge of the situation and takedecisions about what they really wantfinancially. Number crunching couldbe delegated to someone else.

Ensure inflation-plus returns: Always ensurethat your in-vestmentsgive you

returns which can beat the inflationrate. Else you would end up with anegative real rate and in the long runyou will not create wealth.

RETIRED INDIVIDUALS Don’t run out of cash: You shouldalways be careful about having cashand cash equivalent at your dispos-al which is enough to meet your reg-ular expenses for the next sixmonths.

Match your income and expens-es: Always make sure you have a reg-ular source of income which, on apost-tax basis, matches your ex-penses. Seen another way, at timesit may be necessary to limit expensesin case incomes do not match up tothe same. You can also consider thesystematic withdrawal plan (SWP)

route to save on taxes.

FOR BOTH THE GROUPS Have a plan B: Have a contin-

gency plan in place in-cluding a loss of

job, in case you areunable to work, or any

other adverse situation.

Get a good financial advisor andmake him/her your friend: Choosea financial advisor after proper due

diligence because if you get a goodperson to handhold you with

your financial plan, he/she, like afriend, will remain with you for life.Also get him/her to guide youthrough various aspects of invest-ing, including tax saving.

I work with a governmentundertaking. My annualsalary is about Rs 7 lakh. Iam 35, and we have two kids,5 years old and 1 year old.How should I invest to get Rs2 crore in 20 years? Mypresent inveestments arefollowing: In mutual funds Rs2,000 per month (pm), in lifeinsurance Rs 34,000 perannuum (pa) and in SukanyaSamridhi Yojana Rs 48,000pa. Also please suggest howI should invest a surpluus Rs10,000 pm?

Ajit Thakur, by email

Nitesh Talatireplies

Firstly congra-tulations forstarting toinvest early inlife, and that

too with a clear picture ofyour future goal in mind, therequired amount and the timeleft to achieve it. This will notonly let you monitor theprogress of the investmentfor that goal, but will also tellyou how much you need tosave every month. This givesthe much required peace ofmind and most importantlyleveraging your hard earnedmoney wisely instead ofmaking last minutearrangements to take care ofvarious goals.

Considering your currentappetite for making

investments, we recommendyou to increase yourinvestment contribution tolarger amount as much aspossible with belowallocations:

Remember next twodecades are the golden yearsof your life.

As you mentioned thatcurrently you are investingRs 2,000 pm into mutualfunds. Our suggestions are:●● Reduce your SukanyaSamridhi annual inputs of Rs48,000 to Rs 6,000 only (Rs 500pm), as the minimumrequirement is only Rs 1,000pa.●● Now the remaining Rs42,000, carved out fromSukanya Scheme is to bediverted to an SIP of Rs 3,500pm into diversified equityschemes. This should be keptaside for your kids’ highereducation, which after 15years, at a CAGR of 15%,should fetch you Rs 21.57lakh.●● From your existing lifeinsurance premium, youshould buy a family floatermediclaim policy and a goodamount of a term plan foryourself. (Assuming yourpresent contribution to lifeinsurance is not coveringeither Mediclaim or a termplan).●● Now since you can investan additional Rs 10,000 pm for

your retirement corpus, andfor that you need Rs 2 crore inthe next 20 years. This Rs10,000 could be divided amongmidcap fund (Rs 4,000), largecap fund (Rs 2,000) and a goodthematic fund (like MNCfund). Assuming a CAGR of15% for next 20 years, this willfetch you Rs 1.50 crore. And inaddition to that your existingRs 2,000 allocation to mutualfunds with assumed averageCAGR of 15% for next 20years, which will fetch youclose to Rs 30 lakh. All puttogether you will reach closeto Rs 1.80 crore. You will bejust short of your targetcorpus by Rs 20 lakh. ●● You can cover thisshortfall by adding SIPs asand when you get a raise inyour salary so that you caneasily reach your desiredgoal.

Please remember in thelong run, SIP in mutual fundschemes can generatewonderful returns. Also bepassionate about yourinvestments and stick to yourgoals. Never stop your SIPsout of emotions or in anymarket condition. If youinvest regularly and in adisciplined manner, you caneasily achieve your long termgoals.

Nitesh R Talati runsMomai Investment in Mahuva

(Gujarat)

INVESTOR QUERYMY PARENTS ARE SENIOR CITIZENSSOLELY DEPENDING ON MONTHLY INTEREST RECEIVED FROM FDS. THEYSTARTED THE FDS AT 9.5% WHICH ARENOW MATURING WHEN THE CURRENTRATE IS AROUND 8%. THERE IS A BIGDIP IN THEIR INCOME. WHERE CANTHEY INVEST TO GET A MONTHLY INCOME SIMILAR TO OLD FD RATES?

Saurav Roy, via email

Vijay K Patel answers Your parentscan look for monthly income plans(MIPs) offered by mutual funds whichtypically invest 15%-25% in equity andthe remaining portion in various debt& money market instruments.

Investment objective of MIPs is togenerate regular income through in-vestments in fixed income securitiesand capital appreciation/dividend in-come through investment of a portionof net assets of the scheme in equityand equity-related instruments. In-come may be generated throughcoupon payments, amortization of dis-count on debt instruments, receipt ofdividends or the purchase and sale ofsecurities in the underlying portfolio.Investment will be made in fixed in-come securities, money market instru-ments, cash and cash equivalentswhile maintaining a limited exposureto equity markets. However, there is noassurance that the investment objec-tive of the scheme will be achieved.MIPs do not guarantee any returns.

For regular monthly or quarterly in-flow one can opt for systematic with-drawal plan (SWP) instead of dividendoption as the latter will attract 28.84%dividend distribution tax. One alsoneeds to consider exit loads by fundhouses which can vary from 1-3 years,and in the range of 1-2% on SWPamount. Short term capital gain mayarise on withdrawal through SWP. Benefits of MIPs: ●● A fixed income product thatendeavors to provide regular returns●● Portfolio consists of quality fixedincome papers of mostly 1-4 years maturity to generate stable returnscoupled with a chance to participate inany significant rally in the marketthrough its equity exposure.●● Regular and almost fixed rate ofdividend every month. A good invest-ment option for investors who want aregular stream of income in the formof dividend, although the same is notguaranteed.

Vijay K Patel runs PatelInvestments, Bhavnagar

NEXT EDITIONIn our next edition we will discuss the safeguards commoninvestors should put in place while investing online.

DEMYSTIFIER

CASE STUDY

‘Spread your investments into largecap, midcap and thematic funds’It’s always better to start the process of financial planning early in life, but it’s also

true that one can always start such a plan irrespective of what stage of life one is at

11-steps to a secured financial future

WHAT IS HIGH FREQUENCY TRADING?Swatantra Kumar explains: Commonly referred by its acronym HFT, it is atrading process using powerful computers which in turn are run by complexsoftware programmes. HFTs are mainly used in trading stocks and derivativeproducts to make profits by populating the trading server of the exchangeswith several millions of orders within minutes and taking advantage of anymis-pricing that exits. Since HFTs use powerfulcomputers, they put common investors whotrade through human intervention at a hugedisadvantage. To address this problem ofdisadvantage to a set of market participants,recently Sebi proposed a set of rules so that peopleusing HFT and those trading manually are put at parwith each other. Althoughseveral market regulatorsaround the world have beentrying to put rules for HFTs,Sebi has taken the lead inhaving a level playing field forall types of investors.

Average investors can becomeexperts in their own field andcan pick winning stocks as

effectively as Wall Street professionalsby doing just a little research

Peter Lynch, celebrated fund manager

GURU SPEAK

Planning for financial freedom in the long runcould imply less worries about money in

future. It could also mean early retirementthat many think about but fail to achieve.

START EARLY: Havetime on your side thatwill help the power of

compounding to take yourside with all its might

DISCIPLINED APPROACH: Make sureto in-

vest a part ofyour earningseven when thesituation lookstough

INVESTREGU-LARLY:

Make it a pointto save and invest in sync

with the regularity of yourearnings

CONTROL YOUREXPENSES: Rememberthat savings could be

increased by cutting down onyour unnecessary expenses

MINDDINFLA-TION: In-

flation is thesilent killerwhich can se-verely affectyour long termwealth creationplans. Take

guard against price rise

HERE ARE FIVE THINGS THAT YOU COULD HELPYOU TOWARDS FINANCIAL FREEDOM:

ILLU

ST

RA

TIO

N:

SA

CH

IN V

AR

AD

KA

R

THE TIMES OF INDIA, MUMBAI TUESDAY, AUGUST 23, 2016 15