TIMES NEWS NETWORK A t the beginning of every new year, we tend to promise our- selves to accom- plish a handful of goals by the time the year ends. A lot of time we end the year a sat- isfied person, having achieved at least a majority of the goals. At times, how- ever, we fall short in meeting those targets and some time we fall short miserably. How- ever, even if you fall short, never stop having a handful of practical and achievable New Year resolutions. As we start the financial year 2016-17, below are a set of financial resolutions from two experienced fi- nancial planners which any investor can adopt. Through the year till March 2017, if you are able to meet some of these targets, “after meeting some of the challenges of dai- ly life and also human emo- tions which may make us lose track of these resolutions,” as Naresh Pachisia, MD, SKP Securities puts it, you are most likely to have a satisfy- ing year as an investor. And according to Mukund Se- shadri, co-founder, MSVen- tures Financial Planners, use apps and the available tech- nology to keep track of your expenses because slowly but surely “expenses are emerg- ing to be the backbone of fi- nancial planning.” Below each of the resolu- tions there are boxes to help you keep track of your progress through the next twelve months. As you achieve one, fill in or tick the relevant box and at the end of the year aim to feel good by ticking more boxes than are left unmarked. RESOLUTIONS FOR FY2016-17 Needs vs Wants: There are things which you and your family may want but they may not be needed for the family. Identify at least three items of avoidable expenses in your family, which you want but do not need. This will help you to save and invest more. (NP) Item 1: Item 2: Item 3: Set financial goals: If you have not done it already, spend some time and find out what all should be your finan- cial goals in life. These goals could short term in nature, medium term or long term in nature. (MS) Short term: Medium Term: Long term: Where do you stand now?: Find out all about your cur- rent investments including mutual funds, EPF, PPF, FDs, insurance policies, bank ac- counts etc. It’s very impor- tant to have a clarity about where all you have invested. (MS) MFs: EPF: PPF: Bank FDs: Life insurance: Keep a watch on expens- es: Use technolo- gy or any of the convention- al methods to track your expenses. Once you know your expenses, along with your assets and li- abilities, 60% of your job re- lating to financial planning is done. (MS) Expenses tracked through apps/data sheet/keeping a diary: Have an asset allocation plan: Create an asset alloca- tion plan to meet each of your financial goals, starting with mapping existing invest- ments with goals and as- sessing how much more you need to invest regu- larly (like SIPs) to meet your goals. (NP) Review Portfolio: Monitor your portfolio performance regularly vis-à-vis your fi- nancial goals, take corrective actions as required and main- tain discipline of regular in- vestments without becoming victims of human emotions of greed and panic caused by volatility in financial mar- kets. (NP) Review in September: Review in March: Take a life cover: Ensure that all the bread earners in the family have sufficiently protected their dependents from calamities of nature by taking life insurance cover, as per their Life Time Value. (NP) For Person 1: For Person 2: Have a health cover: Ensure that each family member is sufficiently covered for any medical exigencies. (NP) For Person 1: For Person 2: For Person 3: For Person 4: Prepare a will: Make sure all the adult family members have made their Wills. By Person 1: By Person 2: By Person 3: NP: Naresh Pachisia MS: Mukund Seshadri Naitik Shah replies: As per the information and your requirements, here are my recommendations: Contingency Fund: You should have at least three months of salary as a contingency fund. So surrender the ULIP, presuming it doesn’t provide you any insurance cover. You can transfer this fund in a liquid fund for any contingency requirements. Health Insurance: Even if your company provides health insurance cover to your whole family, you should have a separate health insurance cover. In case you change your job and new employer doesn’t provide this benefit your family, you will not be without a health insurance cover. Also in the absence of it, you may need to stretch your savings. Life Insurance: Since you have not mention your monthly family expenses, I am assuming whatever left after investments and taxes is your family expenses {Rs 11,00,000-(Rs 1,44,000 SIP +Rs 16,000 life insurance + Rs 1,15,000 approximately as taxes) = Rs 8,25,000 per annum} as a thumb rule you should have 8-10 times of your yearly expenses as insurance. So I recommended you to buy some more term insurance to accommodate the same. Goals Higher Education: I assume here a two-year residential post-graduate programme at a premier institute in India will cost an average of Rs 12-15 lakh. Considering inflation in education at 8-9% in India, your son would require Rs 28 lakh and daughter Rs 35 lakh. You can start an SIP of Rs 10,000 for your son’s higher education and an SIP of Rs 8,000 for your daughter’s higher education. Marriage and own house: For this you need to have some approximate amounts in mind, the current rate of inflation for such costs, and then device a plan. The same for your house, where you also need to be clear about in how many years you want your own house. Retirement: Assuming your current family annual expenses as Rs 8.25 lakh, your retirement age as 60, life expectancy as 80, inflation at 6.5% constant throughout your life, your annual family expenses will be Rs 29 lakh when you retire. We assume 10% return on investment during your retirement years, you will require Rs 1.2 crore as your retirement corpous. Considering 12% return on your equity SIP you need to have SIPs of Rs 12,000 per month for your retirement, which you currently have. So for your retirement requirement if you continue the same SIP till your retirement, you can meet this goal. Naitik Shah runs Shah Investment Consultants, Bhavnagar I am 40 years old, working with an MNC, drawing Rs 11 lakh annually. I have a 10-year old son and a 6-year old daughter. My investments are: Investments: Four SIPs of Rs 3,000 each, two in tax saver funds for past one year and two in other open ended equity schemes for past four years. Total current value of these invest- ments is about Rs 5.3 lakh. I have a risk cover plan worth Rs 50 lakh, for which I pay a yearly premium of Rs 8,000. I have another investment in a ULIP, current value is Rs 2.10 lakh after nine years, for which I don’t pay any premium anymore. I have an LIC policy with a yearly premium of Rs 8,000. I get Rs 20,000 every four years from this policy. I got this amount twice, will get one more and thereafter probably I’ll get another Rs 1 lakh. Goals: Children’s higher education and marriage, a house of our own and retirement. Mohammed Iqbal INVESTOR QUERY I HAVE RS 4 LAKH THAT I WANT TO INVEST IN DIFFERENT MUTUAL FUNDS. SINCE INVESTING ALL OF IT AS A LUMP-SUM IS RISKY, I INTEND TO SPREAD THE INVESTMENT OVER A PERIOD OF TIME. OVER HOW LONG A PERIOD SHOULD I SPREAD THE INVESTMENT OF THIS AMOUNT IN ORDER TO OPTIMIZE RETURNS IN THE LONG RUN (10 YEARS)? Ali Mallick, by email Shailesh Kotecha replies I t’s a good decision to spread your investments over a period of time when you have a lump sum amount to invest. This way you can lower the risks and average out your cost of acquisition over a period of time. You should first put the whole amount, Rs 4 lakh, into a liquid scheme of a good fund house and then set up a systematic transfer plan (STP) to one or more equity schemes of the same fund house. I would suggest you divide your Rs 4 lakh into 12 monthly STPs, which is about Rs 33,333 per month, so that each month this amount is taken out of the liquid scheme and invested in the equity scheme(s) that you have selected. Since your time horizon for investing this amount is 10 years, I would suggest you invest 60% of the money (Rs 20,000 per month) into a large cap equity scheme and the balance 40% (about Rs 13,333 per month) into a mid-cap scheme. After you remain invested till the end of the ninth year, please remember to slowly transfer the corpus that you have in the equity schemes into a liquid scheme. This way again you will lower your risks to your equity portfolio from a sudden slide in the stock market in the 10th year of your investment. In the last year, even if the stock market slides, your total corpus will be hit much less than if you wait to redeem the whole amount at the end of the 10th year. STP: An STP is a process in which a fixed sum of money from one scheme of a mutual fund house is transferred to another scheme of the same fund house at fixed intervals. In your case, the STP will be from a liquid scheme to two equity schemes. Shailesh Kotecha runs Clarity Agencies, Amreli, Gujarat While investing through an SIP, at what NAV the investments are made? Is it at a fixed NAV or it varies through the SIP’s tenure? Abhinav Chaitanya, by email Swatantra Kumar answers: When you invest in a mutual fund scheme through an SIP, the investments are done at the net asset value (NAV) on the day each investment is made. It is not done at any fixed NAV. For example, if you have a monthly SIP of Rs 5,000 in an MF scheme which is done on the 5th of every month, then your Rs 5,000 will be invested at the NAV of scheme that is declared by the fund house on that day. Say if the NAV of the scheme on April 5 is Rs 20, you will get 250 units of the scheme while if the NAV rises to Rs 25 by December 5, you will get 200 units. Set Financial Resolutions In The New Fiscal Track expenses, review portfolio on a regular basis for a smooth investing experience CASE STUDY Have a contingency fund, adequate health cover DEMYSTIFIER Can a tax saving mutual fund scheme, that is Equity Linked Savings Scheme (ELSS), be used to create a retirement corpus? Financial planners and advisors believe this is one of the best and the most cost-effective solutions to creating a corpus for retirement. Here are the some aspects of the same: In the business world, the rearview mirror is always clearer than the windshield.” Warren Buffett, celebrated investor, one of the richest persons in the world GURU SPEAK ILLUSTRATIONS: DEBASISH SARMA NEXT EDITION April is the month when a large number of people get their annual bonuses. In our next edition we will discuss how to invest this lump sum amount for long term wealth creation ELSS FOR RETIREMENT CORPUS Rs 500: Minimum monthly investment No maximum investment limit 1.5%-2.75%: Cost per annum Up to Rs 1.5 lakh: Tax savings per annum under Section 80C of Income Tax Act Mukund Seshadri Naresh Pachisia 3 years: Lock-in from the date of investment for tax benefits 100%: Of the corpus can be withdrawn after the lock-in period Nil: Tax liability on corpus if withdrawn after lock-in THE TIMES OF INDIA, MUMBAI TUESDAY, APRIL 5, 2016 21