Financial planning plays a very important and crucial role in our life. Financial planning can be described as ``Long term process of wisely managing your finances so that you can achieve your financial goals & dreams.``
We all see many dreams for our children`s for their higher education, marriage and their future prospects and also set many goals for us, like buying a dream house, new car, vacation abroad. We surely know our goals and dreams but never make serious attempt to fulfill the same. In reality all our goals and dreams remain on paper only.
Financial planning can solve our many problems in life. Generally it is seen that when time comes for any function or occasion people redeem their money from such investment which was planned for some other purpose. Actually we become helpless when some emergency comes and take some instant decision which can definitely spoil our financial planning. Today it is the need of the hour because of the fact that, we are moving from joint family to nuclear family. Secondly, household, education and other personal expenses are going up every day. The loans and credit cards are becoming more and more common and we don`t understand the impact of interest which is taking away major part of our income.
Financial planning brings discipline in our saving and investment. It helps us to know which of our financial need is immediate, short term or long term. We can easily reach to our destination safely and timely if we set some basic rules for our life and invest accordingly. Most of us are not aware of priorities in our life. We all invest but without understanding our financial goals, risk involved and time horizon. The lack of proper financial planning will add to the problems rather solving it. Life insurance, health insurance and disability insurance are the basic of financial planning. In India today also less than 10% are insured and even those who are insured are also underinsured.
Living short is always a major problem for the family but nowadays living long is also becoming more and more problematic. The average life of an Indian is 63 years at present and is increasing because of the advancement of science and technology. Retirement planning and estate planning will also form part of our financial planning which is also been not addressed by many. Less than 1% prepares their WILL and this leads to litigations in court of law for the years. We have to think very seriously for all this aspects in our life if we want to live happily.
There is other side of every investment which a common man does not understand like, economic growth, equity as asset class, inflation, tax implications and asset allocation. Today we are surrounded by many agents/advisors who come to SELL the particular product such as life insurance, mutual funds, PPF, NSC, postal schemes, FDs and direct trading account. The most of the sells happens without understanding the needs of the clients. We all buy one or other product which may or may not fulfill our desired financial goal. No product is good or bad but more important is, it should match with our financial expectations. Financial planning is the process where product comes after the need analysis. This is the recent trend in India, where in planner charges fees for making the financial plan and does not push the product to earn the commission.
Proper financial planning is the only solution which can help us in fulfilling our financial dream & goals.
This entire process is done in following six steps:
> Establishing relationship with client
> Gathering client data and determining goals
> Analyze clients` objectives, needs and financial situations
> Presenting the financial plan
> Implementing the financial plan
> Monitoring and reviewing financial plan
We mostly plan everything in our life, so why not finances?
Saturday, June 19, 2010
A `travel money` portfolio
Long-distance travel is a booming business. In fact, the World Tourism Organisation estimates that last year, more than 880 million people travelled to a foreign country. And in light of both the upturn in international tourism figures and overall economic indicators in recent months, UNWTO forecasts the growth in international tourist traffic to be 3-4 per cent in 2010.
But greater distances require greater planning, especially when it comes to having ready access to funds while on the road. With the ubiquity of charge and credit cards and ATMs, many people often overlook the risks they face on long journeys. They can be easily lulled into a false sense of security.
Diversify
Our experience shows that travellers, especially those who plan to be away for a week or more, must consider taking along, what may be called, a `portfolio` of payment options. Just as you wouldn`t invest all your savings in one stock or bond, you don`t want to tie up all your travel money in one form of payment.
Each form of payment has its advantages and together they can help create worry-free travel.
Among suggestions for a balanced travel money portfolio are charge and credit cards, debit cards, travellers cheques, and cash.
Charge and credit cards provide a convenient form of payment that is readily accepted the world over. They also allow the traveller to defer payment and, depending on the financial institution, often provide favourable exchange rates.
However, while some financial institutions can replace a card quickly — usually within 24 hours — it may be difficult to get a card replaced if the traveller is in a remote location, or the issuing financial institution doesn`t have a local branch. It`s therefore important to check on card replacement policies before you leave home.
Debit cards
Debit cards are also another good addition to a travel funds portfolio. In most cases, they allow travellers access to cash machines linked to their accounts at financial institutions.
The downside? Lost or stolen cards, cards not compatible with local ATMs or networks, forgotten PINs (personal identification numbers), not enough funds in the linked account and, in some cases, special fees for international transactions. And, they are technology-dependent.
ATMs are great, but they occasionally run out of cash or are out of service — that can be especially troublesome in a new place. It is therefore advisable that travellers check on the availability of compatible ATMs in a destination — especially if travel is to a remote area —- and fees charged by the traveller`s local financial institution for international transactions.
Travellers cheques
We find that a lot of seasoned travellers use travellers cheques as an innovative, low cost way of hedging against the risk that travel funds won`t be available. Here, you get a physical, tangible store of value. Something you can hold on to, that`s usable without a PIN, and is not subject to telecommunications breakdowns, or computer failures or ATM availability.
Better still, it allows travellers to budget their money. You can look at your wallet or purse and see what you`ve spent and what`s left. Travellers cheques can also be easily replaced.
American Express, which is a leading issuer, promises replacement of lost or stolen travellers cheques virtually anywhere in the world usually within 24 hours. And you don`t need to worry if you have leftover cheques at the end of a trip since they don`t have an expiry date. You can keep them, cash them or put them back into your bank account.
Travellers cheques come in a number of currencies, though US dollar cheques are widely accepted at banks.
Finally, there`s cash. Travellers should always keep a small amount of local currency on hand for taxis and buses and tips. And some of their home-country currency as well that they will need on their return home. But carrying large amounts of cash is certainly not desirable. It`s the one form of money that`s not replaceable. It doesn`t have the traveller`s name on it.
Just as you wouldn`t invest all your savings in one stock or bond, you shouldn`t tie up all your travel money in one form of payment.
The author is Director, GlobalPrepaid, American Express.
Retirement portfolios: Need for monthly cash flows?
Investment portfolios are constructed to meet future liabilities. Such liabilities range from buying a house and paying children`s tuition fees to creating endowments and meeting post-retirement lifestyle. Several investors in the recent past have asked us about post-retirement portfolios. The question is: How should one create a post-retirement portfolio that generates monthly cash flows?
This article discusses the retirees` need and the desire to generate monthly cash flows. It also explains investment avenues available to non-pensioners to generate income that replicates pension payoffs.
It is true that retirees have to match their expenses with appropriate income. But it is moot if they necessarily require monthly cash flows from the investment portfolio to enjoy their desired post-retirement lifestyle.
Suppose an investor receives a pension of Rs 5,000 a month. This approximately equals receiving cash flows of Rs 65,000 a year on a deposit of Rs 8.60 lakh carrying 8% interest. Essentially then, those who receive pension income already have bond-like cash flows. Creating a portfolio that generates monthly income would only mean even greater exposure to bonds as an asset class.
This is not true for non-pensioners. They have to generate some monthly cash flows to replicate pension payoffs. Their portfolios have to, therefore, carry sufficient bond assets to generate the required monthly income.
Now, asset allocation is essential for lifecycle investment. This means that even retirees should have some allocation to equity-like cash flows to generate higher returns. Otherwise, their portfolio will suffer from inflation risk. This is because bonds pay nominal interest rate and, hence, do not protect the retiree-investors from rising price levels.
It is important to understand that a post-retirement portfolio should contain assets that generate income as well as capital appreciation. The monthly cash flows would then come from interest, dividends and through sustainable withdrawals from the investment portfolio.
Investors have several ways to creating a portfolio generating monthly income. Many prefer Post Office Monthly Income Scheme (POMIS) offered by the Government. The problem is that POMIS by itself cannot provide the required total monthly cash flow because of an investment cap of Rs 0.45 million for each account. The investment cap translates into approximately Rs 3,000 a month based on the interest rate of 8% a year.
Investors can consider annuities along with POMIS. Such products can be purchased from insurance companies, which entitle the annuitant to receive stable cash flows through their life time. Of course, annuities are priced off the interest rate prevailing at the time of purchase; higher the interest rate, higher the cash flow that the investor will receive for the amount paid to purchase the annuity.
Besides, investors have Monthly Income Plans (MIPs) offered by asset management firms. Such funds predominantly invest in bonds and money market instruments to make monthly payments. These funds will be exposed to price risk to the extent the portfolio has exposure to short-term and long-term bonds and to equity.
This article discusses the retirees` need and the desire to generate monthly cash flows. It also explains investment avenues available to non-pensioners to generate income that replicates pension payoffs.
It is true that retirees have to match their expenses with appropriate income. But it is moot if they necessarily require monthly cash flows from the investment portfolio to enjoy their desired post-retirement lifestyle.
Suppose an investor receives a pension of Rs 5,000 a month. This approximately equals receiving cash flows of Rs 65,000 a year on a deposit of Rs 8.60 lakh carrying 8% interest. Essentially then, those who receive pension income already have bond-like cash flows. Creating a portfolio that generates monthly income would only mean even greater exposure to bonds as an asset class.
This is not true for non-pensioners. They have to generate some monthly cash flows to replicate pension payoffs. Their portfolios have to, therefore, carry sufficient bond assets to generate the required monthly income.
Now, asset allocation is essential for lifecycle investment. This means that even retirees should have some allocation to equity-like cash flows to generate higher returns. Otherwise, their portfolio will suffer from inflation risk. This is because bonds pay nominal interest rate and, hence, do not protect the retiree-investors from rising price levels.
It is important to understand that a post-retirement portfolio should contain assets that generate income as well as capital appreciation. The monthly cash flows would then come from interest, dividends and through sustainable withdrawals from the investment portfolio.
Investors have several ways to creating a portfolio generating monthly income. Many prefer Post Office Monthly Income Scheme (POMIS) offered by the Government. The problem is that POMIS by itself cannot provide the required total monthly cash flow because of an investment cap of Rs 0.45 million for each account. The investment cap translates into approximately Rs 3,000 a month based on the interest rate of 8% a year.
Investors can consider annuities along with POMIS. Such products can be purchased from insurance companies, which entitle the annuitant to receive stable cash flows through their life time. Of course, annuities are priced off the interest rate prevailing at the time of purchase; higher the interest rate, higher the cash flow that the investor will receive for the amount paid to purchase the annuity.
Besides, investors have Monthly Income Plans (MIPs) offered by asset management firms. Such funds predominantly invest in bonds and money market instruments to make monthly payments. These funds will be exposed to price risk to the extent the portfolio has exposure to short-term and long-term bonds and to equity.
It is important to note that fixed deposit with banks is not considered, as they do not provide investors with monthly cash flows. Some investors even take exposure to high dividend-yield stocks to generate monthly income. The problem is that such investments suffer high downside risk, unlike POMIS.
Conclusion
The urge to receive monthly cash flows from investment portfolio is high among retirees. This article shows why pensioners should resist this urge, as pensions have bond-like cash flows.
Non-pensioners should consider annuities, POMIS and MIPs as part of the investment repertoire to replicate pension payoffs. The proportion of the portfolio to each product would depend on investors` desired post-retirement lifestyle and risk tolerance level.
Even post-retirement portfolio should carry optimal allocation to equity and bonds, if not other asset classes. Such a portfolio would help retirees enjoy inflation-adjusted post-retirement lifestyle.
The urge to receive monthly cash flows from investment portfolio is high among retirees. This article shows why pensioners should resist this urge, as pensions have bond-like cash flows.
Non-pensioners should consider annuities, POMIS and MIPs as part of the investment repertoire to replicate pension payoffs. The proportion of the portfolio to each product would depend on investors` desired post-retirement lifestyle and risk tolerance level.
Even post-retirement portfolio should carry optimal allocation to equity and bonds, if not other asset classes. Such a portfolio would help retirees enjoy inflation-adjusted post-retirement lifestyle.
Will your investments continue to grow lifelong?
Imagine that returns on your investments are continuously rising and majority of the analysts predict a strong uptrend for your securities. You would be elated that your investments would surely give voluminous returns in the months to come. However, just assume if a proportion of analysts say otherwise? Wouldn`t it have a pinching effect. ``Mean to reversion`` theory exactly means the same.
Investopedia defines mean reversion as follows, ``The mean to reversion strategy is based on the mathematical premise that all prices will eventually move back towards the mean or average return.``
Thus, if a stock is underperforming, its price will move towards its average value when the market rebounds. How does this work in case of gold - the safe heaven of many and India`s benchmark index, the 30-share index - BSE Sensex? On comparing average yields of Sensex v/s that of gold from 1980 to 2010, we observed that the index gave a return (min avg yield) of 19% while yellow metal provided returns of merely 2%. However, while the index has touched a whopping 17K plus in 2010, the prices of gold have touched closed to USD 1250 an ounce. Will the prices continue to rise?
Let`s test the ``Mean to reversion`` theory and find out. To study the theory, we took smaller bracket years from 1995-2010 (15 yrs), 2000-2010 (10 yrs) and 2005-2010 (5 yrs). We observed that in each of the years, the yellow metal had provided absolute returns of 306.59% (while its average annualized yield is 15% p.a.); 306.59% (while its average annualized yield is 15% p.a); and 62.95% (while the average annualized yield was 21 %.). The average (mean) of the returns (yield) turns out to be 12.25%. Now if reversion to mean theory is applicable, the gold prices which have been steadily rising since 2002 is likely to witness a down trend and come back to its mean return of 12.25%. Let`s see if the same is applicable in our index - BSE Sensex. We studied the prices of Sensex during the same years. From 1995-2010 the Sensex gave an average annualized yield of 12%. Meanwhile from 2000-2010 and 2005-2010 the yield was at 15% and 12% respectively. The average of the three turns out to be 13%. This shows that after a rising uptrend in the returns of 15% the index gave returns of 12% which was less than its average returns of 13%
How about a public provident fund? In the case of this government security, returns come out at 12% in 1995, 11% in 2000, 11% in 2005 and 8% returns in 2010. The average returns would be 10.50%. Meaning, in the last 15 yrs, PPF has given average returns of 10.50% and more likely that the returns will increase over the years.
The above analysis shows that as there is an uptrend in the returns of the investments over a period of time, the prices return to the average price. With the help of the theory, one can predict the timing in the stock market. Like if we know the average annualized returns of the investments we know at what rate the price will go down near the mean if it is falling or go up near mean if it is in a declining trend. If recent returns have been below average, we can forecast above average future returns, and change our portfolio to allocate a higher portion to stocks.
The drawback!
What we studied, was the historical returns of the prices of investments going back to 1995 and we had the data already available with us, an in sample test which helps to time the market. However, if we go back to the period and take the information only available to us during that time, it would be practically difficult to time the market.
Investopedia defines mean reversion as follows, ``The mean to reversion strategy is based on the mathematical premise that all prices will eventually move back towards the mean or average return.``
Thus, if a stock is underperforming, its price will move towards its average value when the market rebounds. How does this work in case of gold - the safe heaven of many and India`s benchmark index, the 30-share index - BSE Sensex? On comparing average yields of Sensex v/s that of gold from 1980 to 2010, we observed that the index gave a return (min avg yield) of 19% while yellow metal provided returns of merely 2%. However, while the index has touched a whopping 17K plus in 2010, the prices of gold have touched closed to USD 1250 an ounce. Will the prices continue to rise?
Let`s test the ``Mean to reversion`` theory and find out. To study the theory, we took smaller bracket years from 1995-2010 (15 yrs), 2000-2010 (10 yrs) and 2005-2010 (5 yrs). We observed that in each of the years, the yellow metal had provided absolute returns of 306.59% (while its average annualized yield is 15% p.a.); 306.59% (while its average annualized yield is 15% p.a); and 62.95% (while the average annualized yield was 21 %.). The average (mean) of the returns (yield) turns out to be 12.25%. Now if reversion to mean theory is applicable, the gold prices which have been steadily rising since 2002 is likely to witness a down trend and come back to its mean return of 12.25%. Let`s see if the same is applicable in our index - BSE Sensex. We studied the prices of Sensex during the same years. From 1995-2010 the Sensex gave an average annualized yield of 12%. Meanwhile from 2000-2010 and 2005-2010 the yield was at 15% and 12% respectively. The average of the three turns out to be 13%. This shows that after a rising uptrend in the returns of 15% the index gave returns of 12% which was less than its average returns of 13%
How about a public provident fund? In the case of this government security, returns come out at 12% in 1995, 11% in 2000, 11% in 2005 and 8% returns in 2010. The average returns would be 10.50%. Meaning, in the last 15 yrs, PPF has given average returns of 10.50% and more likely that the returns will increase over the years.
The above analysis shows that as there is an uptrend in the returns of the investments over a period of time, the prices return to the average price. With the help of the theory, one can predict the timing in the stock market. Like if we know the average annualized returns of the investments we know at what rate the price will go down near the mean if it is falling or go up near mean if it is in a declining trend. If recent returns have been below average, we can forecast above average future returns, and change our portfolio to allocate a higher portion to stocks.
The drawback!
What we studied, was the historical returns of the prices of investments going back to 1995 and we had the data already available with us, an in sample test which helps to time the market. However, if we go back to the period and take the information only available to us during that time, it would be practically difficult to time the market.
Investing in tough times: Some tips
Are we in a slowdown or in a recession? Well, nobody has an answer to this question. When we see the media hysteria we keep wondering how `shriller` can the voices become?
If you are in the middle portion of your life and surrounded by EMIs for your house, children`s education, car payments the situation will of course be scary. And we in the media business love to write about `negative things` rather than positive things. The current state of the economy could be a worry. What should you do in such a slow down? Here is some generic advice that might help.
Your goals still standIf you are a scientific investor, most of your investments will be towards a specific goal. So unless you are sure that a particular goal is not important (and your spouse also feels the same way) do not touch the amounts set aside for a specific important goal. Early withdrawals from insurance and life insurance plans can be very expensive in terms of costs and taxes. Perhaps more importantly if the equity market looks up even a little your investments could recoup very well. Howsoever tempting, do not touch moneys to which you have given direction and momentum.
Many eggs in 3-4 baskets
All types of financial assets - life insurance, mutual funds, savings bank accounts, bank fixed deposits, provident fund schemes, government securities, equities, etc. all of them have a role in life. Each asset class (real estate, debt and equity) - perform differently in different economic climates. Stop chasing media headlines. This is a time when you will hear statements like `Cash is King`, `Stay away from equities` - just ignore them. There is no permanently correct investment advice. Today there are people who can manipulate data for long periods of time and come up with `newsletters` - ignoring most of it has its advantages too!
Track changes in your lifeIf you did your risk profiling 5 years back, do it again. Do not take on too much risk when the markets are rising and cut equity exposure when markets are down. Realise that `risk` is largely counter intuitive. If you feel there was no risk, risk may be at its maximum and vice-versa! However if you are closer to some event for which you are saving, then you may still find it worthwhile to sell. In the last 5 years you have built some assets, you son has started working, your EMIs are over, your car loan is paid off… if all this has happened you may need less insurance. But if the goals are valid, the savings and investments are not enough to fill the gaps, keep your term life insurance valid and in force. If you are dependent on your company`s group insurance - life and medical - take an individual policy and keep it live. In case of a job loss it will be vital.
Think Long Term, not next quarter
Markets are cyclical! It is only the media which should be worried about quarterly results. You should not be so short term `ish` in your thinking. So it should call for long periods of inaction. Warren Buffet says at Berkshire Hathway we think of this as a good habit. Markets fall, and then they go up - the broad index is wavy, ALWAYS over the long term. Rather than react to the market, it makes sense to create a carefully considered long-term strategy, especially when it comes to your long-term needs. Frankly if you are saving money for your daughters post graduate education, and she is 3 years of age - how does it matter that the markets will take 6 months to recover? You should be worried about the corpus size only when your daughter is 3-4 years away from graduation.
Use the Knowledge of Your Advisor / Relationship Manager, if any!
If any - was meant for the advisor, not his knowledge! Unfortunately most life insurance companies and mutual funds chase only the `potential` new customer with all kind of freebies. The existing advisors and investors are not helped at all - either in the form of guides or teaching aids. It is imperative that you learn and understand on your own - and know the art of wealth creation and for most of my clients` - wealth preservation!
If you are in the middle portion of your life and surrounded by EMIs for your house, children`s education, car payments the situation will of course be scary. And we in the media business love to write about `negative things` rather than positive things. The current state of the economy could be a worry. What should you do in such a slow down? Here is some generic advice that might help.
Your goals still standIf you are a scientific investor, most of your investments will be towards a specific goal. So unless you are sure that a particular goal is not important (and your spouse also feels the same way) do not touch the amounts set aside for a specific important goal. Early withdrawals from insurance and life insurance plans can be very expensive in terms of costs and taxes. Perhaps more importantly if the equity market looks up even a little your investments could recoup very well. Howsoever tempting, do not touch moneys to which you have given direction and momentum.
Many eggs in 3-4 baskets
All types of financial assets - life insurance, mutual funds, savings bank accounts, bank fixed deposits, provident fund schemes, government securities, equities, etc. all of them have a role in life. Each asset class (real estate, debt and equity) - perform differently in different economic climates. Stop chasing media headlines. This is a time when you will hear statements like `Cash is King`, `Stay away from equities` - just ignore them. There is no permanently correct investment advice. Today there are people who can manipulate data for long periods of time and come up with `newsletters` - ignoring most of it has its advantages too!
Track changes in your lifeIf you did your risk profiling 5 years back, do it again. Do not take on too much risk when the markets are rising and cut equity exposure when markets are down. Realise that `risk` is largely counter intuitive. If you feel there was no risk, risk may be at its maximum and vice-versa! However if you are closer to some event for which you are saving, then you may still find it worthwhile to sell. In the last 5 years you have built some assets, you son has started working, your EMIs are over, your car loan is paid off… if all this has happened you may need less insurance. But if the goals are valid, the savings and investments are not enough to fill the gaps, keep your term life insurance valid and in force. If you are dependent on your company`s group insurance - life and medical - take an individual policy and keep it live. In case of a job loss it will be vital.
Think Long Term, not next quarter
Markets are cyclical! It is only the media which should be worried about quarterly results. You should not be so short term `ish` in your thinking. So it should call for long periods of inaction. Warren Buffet says at Berkshire Hathway we think of this as a good habit. Markets fall, and then they go up - the broad index is wavy, ALWAYS over the long term. Rather than react to the market, it makes sense to create a carefully considered long-term strategy, especially when it comes to your long-term needs. Frankly if you are saving money for your daughters post graduate education, and she is 3 years of age - how does it matter that the markets will take 6 months to recover? You should be worried about the corpus size only when your daughter is 3-4 years away from graduation.
Use the Knowledge of Your Advisor / Relationship Manager, if any!
If any - was meant for the advisor, not his knowledge! Unfortunately most life insurance companies and mutual funds chase only the `potential` new customer with all kind of freebies. The existing advisors and investors are not helped at all - either in the form of guides or teaching aids. It is imperative that you learn and understand on your own - and know the art of wealth creation and for most of my clients` - wealth preservation!
Classification of Commodities
AGRICULTURAL COMMODITIES:
PLANTATION: Rubber | FIBRES: Cotton | |
SPICES: Pepper Turmeric Jeera Chilli Coriander Cardamom | CEREALS: Wheat Barley Maize | |
OIL & OIL SEEDS: Castor seeds Cotton seed oilcake Soy bean Refined soy oil Mustard seed Crude Palm oil | ||
OTHERS: Almond Guar seed Menthe oil Potato Guar gum Gur Sugar | ||
PULSES: Chana Yellow Peas |
METAL & ENERGY COMMODITIES:
BULLIONS/PRECIOUS METALS: Gold Silver Platinum | BASE METALS: Copper Zinc Lead Steel Nickel Aluminum Tin |
ENERGY: Crude oil Natural gas Gasoline Heating oil |
The list of internationally traded commodities is even longer. Internationally livestocks, weather contracts are also traded with good volume. Weather contracts have entered into India but will take good time to catch up attraction.
There are also some more commodities traded on Indian Commodity Exchanges such as ATF, Thermal coal etc. Variants of commodities such as Maize feed, Maize Industrial etc. Contracts also classified upon location and different volume/weight, import grade, export grade etc. are also traded.
We will shortly give you brief, and basic idea about each segment of commodities along with some useful insight.
Please be a part of this learning process.
MERCK LTD- MNC hunters and Mumbai based Portfolio Managers to start pilling up
MERCK LTD.
Is an pharmaceutical MNC Giant.
Our reliable sources gave a hint that some prominent Portfolio Managers and MNC hunters based in Mumbai are going to start piling up this counter.
More than 20% upside is likely in near future.
For detailed view of MEGHA INVESTMENTS AND RESEARCH team, please visit soon.
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