What is Estate Planning? Why everyone needs Estate Planning?

When people hear the words “estate planning”, they often think it only applies to the rich and famous or those who have the potential of a taxable estate. This is a common misconception.Everyone, regardless of their net worth, needs to prepare some basic estate planning documents. Basic estate planning documents not only direct how your assets will be distributed upon your death but can also carry out your final medical wishes. Most importantly, these basic estate planning tools can help protect your loved ones during a difficult time.

 Here are the two tools you should have:

Will – This is a legal document that lays out the distribution of your personal property after you die. You choose the person, your personal representative, who will oversee your estate as it goes through probate. A will not only protects your physical assets but also any children you have as a will allows you to appoint a legal guardian, rather than letting the court make this decision. A will must be drafted by a lawyer who can ensure that your will meets your home states legal requirements.

Living Trust – This is a legal entity where you are able to transfer title of your property during your lifetime. The first major benefit is you maintain control over all of the assets transferred to the living trust during your life. You also choose who the trustee of your living trust will be when you die. The trustee ensures, after your death, your assets are distributed to the named beneficiaries. The second major benefit of a living trust is that this trust avoids probate, which can be costly and time consuming.

What Is the Importance of Investing?

Investment gives your business essential the capital that it needs to get off the ground (if you're a start-up) or to get to the next level (if you're more established). It can mean the difference between success and failure, or between reaching your full potential and only getting partly close to it.

The importance of investing cannot be overstated. Money is a fluid thing. Something worth one dollar one day could cost significantly more the next day. This is because history shows us that things always cost more over time. When you view this dynamic over years and decades, it becomes obvious that doing nothing with your money will cause it to lose its buying power. It is therefore important to invest to make your money grow rather than shrink.

Investing is also a way to help save money for a major purchase. This can be for a home, car or vacation. The more your money grows while it is invested, the faster you will reach your investing goal. Like the emergency fund, the investment should have as high a growth potential as possible without having too much risk. However, if the savings goal will take you several years to achieve, it is worth considering a little more risk in exchange for a little better return.

Investing is especially important for long term savings goals. The best example of this is college savings for children. The most important reason to invest is for retirement. When your working days are over you will need money to survive. Retirement investing has the longest time horizon of all. As a result, you can afford to take chances while you are young. As with college savings, you should shift to more conservative investments as you approach retirement age. 

If you don't start investing now, expect to be in the poor house later.

There are many investment calculator tools available online. Investment calculator can help you plan your way to overcome the requirements identified by you in the Savings and Retirement Needs calculators.

Here is one of the investment calculator.

http://www.inglife.co.in/planningtools/planningtools-achieving.shtml#

Importance of Certified Financial Planner

CERTIFIED FINANCIAL PLANNER Certification (CFP) is a mark of excellence granted to individuals who meet the stringent standards of education, examination, experience and ethics. It is the most prestigious and internationally accepted Financial Planning qualification recognized and respected by the global financial community.

CERTIFIED FINANCIAL PLANNER is marks which help you identify Financial Planners who are committed to competent and ethical behaviour when providing Financial Planning services. CFP practitioners have taken the extra step to demonstrate their professionalism by voluntarily submitting to the rigorous CFP certification process. In addition to significant education and experience requirements, they must pass a comprehensive exam that tests their personal Financial Planning knowledge and skills, continually update their abilities and abide by FPSB India Code of Ethics and Professional Responsibility (Code of Ethics) and Financial Planning Practice Standards (Practice Standards).

CFP practitioners can work in several settings including small Financial Planning practices, large financial services firms, banks and other financial institutions. The Certified Financial Planner (CFP®) designation can be of critical importance for reasons that are largely hidden by the financial services industry.

When it comes to ethics and professional responsibility, Certified Financial Planner™ professionals are held to the highest of standards. CFP Board's Code of Ethics outlines CFP® professionals' obligations to uphold principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence. 

Importance of Financial Management

Financial management is very important or significant because it is related to funds of company. Financial management guides to finance manager to make optimum position of funds. 

With study of financial management, we can protect our business from pre-carious mismanagement of money. Suppose, you are small businessman and you took short-term loan and financed fixed assets with this loan. It means, you have to pay loan within one year but fixed assets cannot be sold within one year. In the end of year, you have not enough money to pay this long term debt and this will create risk to your business’s existence. You will become insolvent. This is the simple example of mismanagement of money in your small business, but we do large scale company business, importance of financial management is greater than small business. We should invest in fixed asset if there is any other source of funds. In financial management, we make optimum capital structure and we should buy all fixed assets out of share capital money because, it will reduce the risk of repayment.

In financial management, we deeply study our balance sheet and all sensitive facts should be watched which can endanger our business into loss. For example, a closing balance sheet shows you, you have to pay large amount of debt in next year and you have blocked all the money by purchasing goods or inventory. Financial management teaches you that this is not good outflow of funds which is invested in inventory. Blocked inventory never generate earning and your balance sheet’s stock value gives you idea that your company is not capable to sell products quickly. Financial manager can elucidate you that overstocking will increase go down expenses one side and it is also risky due to the danger of damage the stock. Moreover, it increases risk of liquidity. Inventory management is the part of financial management and merely using inventory management can be the best way to solve the problem of overstocking.

 Financial management works under two theories. One theory reins bad sources of fund. This theory elucidates us that we should think cost, risk and control and these should be minimum when we get money from others. Only financial management makes good financial structure to minimize cost, risk and control of borrowed money. Second theory clarifies us that we should think about time, risk and return before investing our money. Our ROI should be more than our cost of capital. Our risk of investment should be least. We should get our money with high return within very short-period. All above things can be possible only after study financial management.

Achieve your financial goal with right investment approach and knowledge.

We all dream to be financially stress free, have a larger than life retirement, leave a fortune for our heirs etc. These are some of our major life goals and can be achieved with the right investment approach and knowledge. However the problem occurs when these investments go for a toss and one needs to compromise or give up on achieving their future goals. Most of our investments are either emotionally driven or instinct based. Even today when one wants to make an investment they will go to their father’s friend’s cousin for a tip, invest in the same and will realize after 10 years that the rate of return was as good as keeping the money in a savings bank account. When it comes to purchasing a life insurance policy or mediclaim one will go to their family insurance agent who will sell the policy that gives him a higher commission than the policy which is actually required for the client and all this without any calculations or need analysis.
 Your money is lying in the savings account but not being invested: it is a very good habit to have a contingency fund in case of any loss of income. However most of us keep their entire earning in the savings a/c where the rate of return is too low. This will keep your money safe and liquid but with very little growth. Thus it is essential to invest your income in a better investment instrument which will give you a high rate of return to achieve your financial goals in time.

Your insurance cover is higher than you actually required: the amount of life insurance cover required should not be decided by your insurance agent but should to be calculated as per your need analysis i.e. the sum of projected cash flow required by the dependents, corpus for important goals and liabilities if any. Also if your investments add up to the total cover calculated you may not require life insurance.   One may think that the higher the insurance cover the more secured one’s dependents will be, but one does not realize that higher the cover higher will be the premium, instead of paying high premium the same can be invested in a better instrument for a better future goal. Life insurance is not taken for self but for his/her dependents in case of any unfortunate demise of the bread earner. Thus one with no dependents does not require life insurance.

Your life insurance cover is not enough for your dependents: life insurance need analysis gives you an approx amount of cover you require. One is satisfied with 10 policies bought from their agent but do not bother to find whether the total sum assured is even close to their actual cover required. You may not realize now as you are happy with your 10 plus policies but the total sum assured may be too low for your dependents to survive after you or the entire sum assured is washed off in paying your liabilities. One may not be able to purchase more policies as they are already paying high premiums for their current policies, thus for life cover a term insurance policy should be considered as it is pure insurance with very low premium.

Save yourself before you fall in a debt trap: the psychological concept of instant gratification is the start of building a debt trap for yourself. You see some new expensive gadget in the market but currently you are not able to purchase by cash due to tight budget and so you will not think once before swiping your credit card. This will make you a proud owner of the “expensive gadget” but with a liability and in case you forget or are not able to pay your credit card bill on time you have just increased your liability. A good loan will help you build an asset but a bad or the ugly one will erode your money in no time and you may not be able to get out of the debt trap. Thus it is very essential to think twice before taking a loan and why is it required.

Lower the risk, the lower will be the returns: Most of us are risk averse and invest only in risk free instruments. Since risk and returns go hand in hand the lower the risk, the lower will be your returns. Thus manageable risks should be taken to get high returns to build a good corpus for your goals. Risk profiling is required for everyone, as you never know your current financial status may allow you a take a moderate risk and this will let your investment grow at a very high rate.

Long term goals also require attention: monitoring and reviewing your goals is something which gets easily forgotten. However it is essential to review your investments especially when the goals are long term. Long term goals can be 10, 15 or 20 years from now, investments for long term needs to be reviewed regularly and if required re-allocation should also be done. Rebalancing your portfolio is a must, in case you have invested in equity for a particular goal, your corpus needs to be shifted to debt few years before achieving the goals. This will help you keep your money safe and lower the risk when approaching the goal.

Financial advisor with his experience will help you make the right investment,purchase life insurance policy which is best for your dependents and can also save you from falling for a bad investment instrument or an expensive insurance policy with the help of his knowledge for the same.
 

Career options in financial sector.

A career in financial sector means you would like to work as a financial manager, financial planner and look after the business financial aspects. If you specialize in finance major or minor in your management courses a wide variety of careers are open to you. “let us discuss few careers opportunity available in finance today in India.

Financial planning: A financial planner deals with planning for financial future of the firm. A good financial planner understands, capital market investment, money market investment, real estate, taxes investment basics, there are lot of jobs opportunities available in the above fields as financial planner.

Corporate finance: means a person work as financial manager. Financial manager play important role in planning, designing, implementing and monitoring financial plan & policies and procedure and executing various financial decisions. Corporate financial manager also look out for low cost funds and search profitable investment opportunity in the market.

Commercial and retail banking: today banking industry (SBI, ICICI, HDFC, PNB) are hiring largest number of employers as compared to any other part of the financial service industry. Now recruitment in banking is focusing more on management trainers in field of marketing, finance, HR and financial analyst.

Insurance: the various aspect of insurance are life insurance, loss by fire , theft, accident, medical insurance provides job in marketing distribution ,underwriting , operation . Risk and insurance management job in insurance involves variety of areas working as sales representative, an assets manager, an actuary or provides customer services.

Real estate: real estate field provide jobs in construction real estate appraisal, property management, leasing and brokerage and leasing and development of real estate.

International finance: companies are more interested to appoint financial professional who understand the global business environment and their operation. These financial professional helps companies deal with risk and return associated with company due to international operation and trade practices.

Investment banking: An investment bank is financial institutions that provide investment and other financial advisory services to corporation and high net worth individual’s job in basic includes financing for clients, deal structuring in merger acquisition, as a consultant and advisory services for corporate restructuring. Some investment banks are HSBC, Kotak investment.

Mutual Fund: Mutual fund in India has emerged as critical institutional linkage among various financial segments like saving, capital formation and the corporate sector.

What is true financial planning?

Financial Planning has become a buzzword in the financial services industry nowadays. Banks, insurance companies, mutual fund companies, etc use this term a lot these days. An insurance agent will call himself a financial planner & a big bank may offer financial planning services. But what are they providing under the term financial planning. Most of them just use the term ‘financial planning’ very superficially & are actually just selling financial products. So an insurance agent will just sell you another Unit linked insurance plan saying that this is offering best returns, giving tax benefits & it is the best financial planning you can get. The question of insurance is usually omitted, ironically.

Banks which offer financial planning are actually just selling mutual fund schemes, portfolio management schemes or any new scheme which they can get their hands on. There are some who do give you a written document known as a ‘financial plan’ but this usually does not give you any insight on your finances but is usually a more polished way of telling you what to buy. The reason for this is that most of them earn good commissions on sales made. The question of good, practical & unbiased advice for consumers is very much absent.

Financial planning is a systematic approach to your personal finances. When you have a target, you tend to work towards it. Thus when you write down your financial goals such as comfortable retirement, child’s education or even a dream vacation, you have visualized a target. Then you need to see where you stand. This means seeing your current  financial status i.e. income, expenses, assets & liabilities. These are just like the four legs of a table. The table being in this case, your financial plan. The next step is to bridge these two i.e. where you are & where you want to be. An unbiased approach is of importance here. You may or may not need a product. If you need a product, the best should be advised.

Only with a proper financial plan will you be able to understand what needs to be done to achieve financial nirvana. This is ‘true’ financial planning!

Diversification – A risk management strategy

‘Don’t put all your eggs in one basket’ is a saying that simply explains what diversification is.

Diversification is the process of spreading your investments across different asset classes, countries, industries, and individual companies. It is a technique used to reduce the risk arising from holding an single asset in your portfolio.

A portfolio should be well diversified and consist of a combination of assets, to reduce the overall expected risk. By spreading out the risk, you lower the odds of all your investments falling at once, as all assets do not move in the same direction and grow at the same rate in a particular period of time. There are various sophisticated techniques used by professionals to construct a well diversified portfolio.

A few simple facts you could bear in mind to achieve a certain a level of diversification in your portfolio.

The traditional way to diversify is by investing across asset classes, such as equity, debt, real estate etc., as per your investor profile. You could also invest in alternative assets such as precious metals and other collectibles to further broaden your portfolio. The drivers of each asset class vary, hence you should construct a portfolio comprising of assets that move differently in different economic conditions. You can also diversify your investments within an asset class itself. You should invest in stocks of different sectors and industries, as each company is exposed to individual risks of its own. While certain economic conditions might be conducive for the growth of a particular industry or company, another stock might fall under the same conditions. Thus your portfolio must consist of a variety of stocks from varying industries to achieve proper diversification.

You can also diversify your portfolio by investing across geographies worldwide, as each region is exposed to a different set of regional risks, and has a different growth cycle from other economies. Thus by investing across regions the risk of making losses from a particular underperforming economy could get offset by the gains from another booming economy. In today’s globalised markets it has become much simpler to invest overseas, through various foreign funds and also through mutual funds that invest in foreign markets.

Diversification has become even more important today, as in volatile markets asset classes move differently, some move up some come crashing down. In such challenging times diversification can significantly reduce the risk arising from exposure to an individual asset class.

As a retail investor, you can take advantage of diversification by investing even in small amounts in well balanced mutual funds.

However, you must be careful not to over diversify, as over diversification can reduce the expected returns to very low levels.

It is also important to remember that no matter how diversified your portfolio is, the risk can never be eliminated completely, it can only be reduced. Therefore you must construct your portfolio in accordance with your investment goals, time horizon and risk appetite.

Are you aware about your liability to pay Wealth Tax?

The word “Wealth Tax” itself is self explanatory, it is the tax imposed on the net wealth of an individual. However understanding the meaning to wealth in context of Wealth Tax is very important. Wealth is the monetary value i.e. the market value on the date of tax assessment of all the assets owned by an individual, HUF or company. Every individual and HUF whose net wealth as on March 31 exceeds Rs 30 lacs is required to pay wealth tax @1% of the amount that exceeds Rs30 lacs. Wealth tax is another type of direct tax by which tax is imposed on individuals falling under its purview. It is an annual tax like income tax.

Chargeability to wealth tax depends on the residential status of the assesses similar to the residential status for the purpose of the Income Tax. Net wealth means taxable wealth. Net wealth is the aggregate value of all the assets minus any loans taken in order to purchase these assets.

 The assets that are subject to wealth tax are:- Guesthouse, farm-house and residential complex , valuable items like jewellery and any items made up of precious metals like gold, silver, platinum or any other precious metals, aircrafts, yachts, boats that is used for non-commercial purpose, cash in hand that is more than 50,000, for individual and Hindu undivided families, Motor car owned by an individual,  Any urban land situated in the jurisdiction where there is a total population of ten thousand as per last census or within 8 kms of such jurisdiction.

There are some assets which are exempted from the list of wealth tax:- One house is exempt from wealth tax. This is the house you live in, air craft, boat or car used for business purpose provided by the company, furniture, apparels and electronic items that is for personal use, accommodation provided by the company or organization to its employee, the annual salary of the employee is less than Rs 500,000, any land donated for the religious purpose or to charitable trust, any property that is given out on rent for at least 300 days in the year, A residential or commercial house, jewellery, bullion and other precious articles, used as stock-in-trade, Any house occupied by the assessee for the purpose of his business or profession, Any property in the nature of commercial establishment or complexes, Urban land on which construction is not permissible.

To file Wealth tax is similar to filling Income Tax. Also before filing a wealth tax all the essential documents should be attached with the form A. Thus if u fall under the bracket of paying Wealth Tax one should not ignore it. The penalty for the same is 1% interest for every month of delay. Tax evasion invites penalty ranging from 100% to 500% of the evaded amount. Wealth tax returns have to be filed by 31 July.