Mr Mohsin Bijepuri gave us the basics of the economics behind making a sound plan for future financial security of us and our children. The session was arranged by Deepa, as Mohsin is her entire family's advisor and she felt he would help us understand financial matters better.
Mr Mohsin covered various aspects and explained in detail how the rate of interest of our assets should be more than the inflation rates, the difference between bonds and mutual funds, what is Demat, brokerage, terms like asset allocation, Marriage Women Property Act and how all policies or funds should be assigned to MWPA, what is a nominee etc.
Following is a detailed report made by Roopa.
Financial Planning by Mohsin Bijepuri
We had a very informative talk on financial Planning by Mohsin Bijepuri covering the basic aspects of finance like interest rates, types of investments, Mutual funds, Asset allocation etc.
I have made an effort to summarize his talk in my own way,Hope all of you find this useful.
Basics of Financial Planning
There are two types of income called active and passive income. Active income- is the income earned by an individual throughout his life. Passive income-is the return we earn on our investments. Its basically making our money work for us.
Savings=Income - Expenses, so the money that remains after our expenses normally goes into savings but we must change the equation to Income- Savings = Expenses, to have a sound financial health.
Types of financial instruments-Debt (eg Fixed deposits), Equity, Mutual funds, Insurance, are some of the financial instruments available for investment.
Debt-Investing in debt and bank fixed deposits always give a fixed rate of return and there’s no risk attached to it as the return is guaranteed.
Equity -investing in the shares of Companies listed in the Bombay stock exchange and NSE(National stock exchange).Equities carry the highest risk but also is the only asset class that gives the highest return in the long run.It is generally recommended for people with high risk taking ability.
Mutual funds-is a professionally managed investment fund that pools money from investors to buy securities.They give a higher return than debt and Fixed deposit when held for a reasonable time frame.But equity based mutual funds are subject to market risks.
Types of mutual funds-There are different types of mutual funds namely Equity funds, Debt funds, Balanced funds, tax savings schemes, sector based funds etc.Investing in SIP
(Systematic Investment Plan) is highly recommended as it gives good rate of return when held for the medium and long term.
Systematic Investment Plan-is the systematic investment of small sums made in investment plans every month regularly.They help in averaging out the market swings and earn a higher return.
Insurance-is a means of protecting financial loss due to unforeseen circumstances.Investment in Term Insurance and health Insurance is mandatory for any individual.
Term insurance-is a plan that provides for a cover for life for a particular period, If the insured expires during the term, the amount insured would be given to the nominee . Health Insurance-It is very important to have adequate health cover as average health expenses are said to be in the range of 20-23%. While taking health insurance, one has to reveal the complete history of health details to the insurance company in order to avoid declination at the time of claim.
Inflation-This is the most important factor to be considered as it erodes wealth to a large extent in the long run.The CPI(Consumer Price Index) hovers around 6% in India, Our investments should definitely give us a return much higher than this to beat inflation.That makes it necessary for us to look for instruments with higher returns. Non-Financial Instruments-Real-Estate,Gold, silver and other commodities come under this. Real-Estate- is known to give an average return of 12% in our country, but the holding period is very long, Initial investment is high and cannot be liquidated easily. Gold also gives a decent return and acts as a hedge against inflation but it is not advisable to hold in the form of jewelry as resale involves wastage and other expenses.
Tenure- is the holding period of investment. They are classified into Short, Medium and long term. Short term-1-3 yrs horizon Medium term-3-5 yrs Long term-> 5 years. Contingency fund-is a fund created to meet emergencies in life.A certain percentage of savings has to be maintained as contingent fund to meet sudden situations like loss of job, natural disasters, terminal illness, death etc, Since we live in uncertain times it becomes very important to have a reserve of funds to tide over difficult situations.
Creating a Corpus-It is very important to create a Corpus to meet the future financial goals like Higher education,marriage,health care,retirement of any family . Future goals have to be grouped into short term, medium term and long term and the modes of investment be selected accordingly.
Asset allocation- Corpus must be created keeping the above mentioned factors in mind and asset allocation.The allocation of funds would depend on the Availability of funds,Risk taking ability and the financial goals of the person. A good corpus must contain the right mix of instruments and the tenure matched to meet our future financial goals.
Mutual funds can be invested in the name of a child. The child has to be the beneficiary while investing in Insurance. A trustee can be appointed to manage the corpus after the demise of the parent,Trustee can act only as a custodian and cannot use the funds for himself unless specified.
Start saving early Create a corpus for our kids Saving for our future help us maintain the same standard of living and meet all our financial goals comfortably, are the takeaways of the session with Mohsin.
Matters pertaining to Trustee,Nominee,Legalities of the same will be discussed in a workshop which is likely to be held in January 2017.
Some Feedback from the session-
Anusha-The explanations were simple,to the point.He didn't
assume us to know the basics.he started from the scratch.
Kavitha- For the first time I understood basic financial
concepts which many people over the years have tried to explain to me but which
were always beyond me.
Gopi- It was quite
informative on the different rates of return for the different investment
types, as well as the nominee vs beneficiary aspect.
Deepa-...change the equation from Investment- expense=
savings to Investment-saving = expense. Saving for your retirement is just as
important as creating a corpus for our children.
Vimal-Thank you Deepa- was an informative and thought
provoking session, specially the bit about difference in interest rates and
inflation and the fact that equity should be a long term investment.
Zainambu-Thanks a lot Dear Deepa,for d Vital Session! Informative!
Anupama-Thanks Deepa for a very informative session.
Margaret-Thanks Deepa for this informative session.
Subhashini-Thanks Deepa,today's session is really an eye-opener for me.
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