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Four ways to make your vacation pay for itself

We can totally understand your excitement when a long awaited vacation is approaching. Likewise, the post vacation depression! How we wish we could guarantee ourselves one vacation every year without it making a big hole into our pockets?

Well a bit of planning and discipline can make a guaranteed annual vacation a reality! Here are 4 ways to achieve this dream.

Have a vacation fund amount in mind well in advance

If you are planning one high value vacation every year, it is best to start pinning down the fund you will require in advance. This is because an estimate of the amount required gives you enough time to create the fund.

Invest surplus lumpsum in a debt fund

If you have any surplus lumpsum amount in hand, invest the same in an ultra – short term debt fund. This will ensure liquidity so that you can withdraw as and when required. At the same time your money will grow at modest returns. This strategy should ideally be followed for a vacation that you want to make within 1 year.

Start a monthly debt investment to fund the balance amount

If you have an estimated amount required for vacations that you want to do next year or the year after that, you can start a monthly investment in a debt fund (this method is also known as a SIP). This will enable you to allocate a certain amount every month for the trip.

Start a monthly equity investment to fund trips after 3 years

Since you know you want to travel every year, why not start creating the fund for the vacations you will be doing after 3 years. For such vacations, you can start a monthly investment (SIP) in a balanced equity fund. This will not only enable you to park a certain amount of sum every month but will also grow your corpus over time. So essentially, a part of your trip can be funded by the returns you generate on your equity investment. Isn’t that great?

How do we help?

At CAGRfunds, we help you plan your annual vacation fund by identifying the asset allocation required for the same. Asset allocation is the split of investment required in debt and equity. We help you create your investment portfolio so that you can just plan your travel while your vacation pays for itself!

For planning your travel fund, call / whatsapp us on +91 97693 56440 or leave a message here

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Is your fixed deposit making you wealthier?

Last week, I met a lawyer on my flight to Delhi. Since I had nothing better to do, I broke the ice and soon, we started discussing about my favorite topic – how do we get wealthier over the long run.

So I asked my new found lawyer friend, what does he do with his surplus funds? Immediate response – “Fixed Deposits!” So I then asked him why? And with a very perplexing look, he said – “My money grows at 6.5%. Do I need another reason?”

That is when I realized the lack of awareness that is prevalent even amongst the learned breeds of lawyers. I therefore introduced him to the concept of Debt Funds.

Debt Funds are those mutual funds which invest in debt instruments like bonds, debentures and money market instruments. But why are we comparing debt funds to fixed deposits?

Fact 1: Debt funds on an average give an annual return of 7.0% – 8.5%. SBI 1 Year Fixed Deposit yields 6.9% interest annually, and a 3 Year Fixed Deposit yields 6.50% annually.

Fact 2: If money stays invested in a debt fund for more than 3 years, then you end up paying considerably lower tax on the returns from such debt funds. This is because of the indexation benefit. Indexation implies to inflating purchase cost to account for inflation. As a result, returns which are subject to taxation is reduced. Also, such reduced returns are taxed @20%. However, in case investments are held for less than 3 years, the gains are added to the income of the investor and taxed as per the income tax slab rate applicable.

Fixed deposits are taxable as per the applicable slab rate of the investor, irrespective of the holding period of investment. That doesn’t sound good at all!

Let us understand by examples:

Consider an investor with income of INR 15lacs. He is willing to invest INR 1lac. The tax slab for this investor is 30% as per the income tax slab.

Case 1: Comparison of FD vs Debt Fund, assuming different rate of returns (as per Fact 1 above)

 

The net gain from investing in Debt funds exceeds in both the holding periods, so the investor is better off by investing in debt funds after taxes.

Due to indexation benefit, the purchase price has been inflated from ₹100,000 to ₹119,808, thereby reducing the tax liability from ₹6,238 in FD to ₹539 in debt funds. This benefit is available when the holding period is 3 years or more.

Case 2: Let us consider a scenario where returns from debt fund are the same as that of FD

An investor is better off by ₹6,051 even if the returns are same, in case holding period exceeds 3 years. Hence, debt funds are more tax efficient than fixed deposits in every scenario.

Time you think about the funds lying in your bank account?

Read More: Will Debt Funds help your create wealth?

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Are you taking the right investing decisions?

Much like the overconfident hare in the fable of “The Tortoise and the Hare”, people can well fall prey to the exaggerated notions of their own infallibility. Are you then, the tortoise or the hare, when it comes to handling your money or investing? What if we were to tell you that overconfidence bias can impact your investment decisions?

There is a very fine line of distinction between confidence and overconfidence. Overconfidence is the difference between ‘what you know’ and ‘what you think you know’.

A colleague of mine had no idea about investing and more specifically, about buying and selling stocks. It was during the regular lunch break discussions about the rising equity market, that he got fascinated with the idea of investing. What next? He started following the prices of stocks and in a trending market, he felt that he is successfully being able to predict the market movement.

The next logical step for him was to open a brokerage account with an equity broker. Kicked by his exuberance about the newly acquired skill, he started buying and selling stocks in small quantities. And his excitement knew no bounds when he started making some money. With the initial success he started to believe that he had the ability to predict the market. And that he had acquired a skill which could help him make money on a continuous and consistent basis. With the increased confidence he started taking bigger bets. But as equity markets do not behave rationally in the short run, there was an unforeseen event in the economy and his stocks started to fall. Seeing his portfolio in red, he had to exit all his positions and he lost faith in equity markets.

How do we then prevent ourselves from being overconfident about our financial decisions?

A financial decision demands a thorough review of attendant factors.

  • Are you getting sold on something that is too good to be true?
  • Are you being over enthusiastic? Optimism is good; but an excess of enthusiasm can be fraught with risk, because it involves haste and haste preempts caution.
  • Do you have enough logical reasons for the financial decision you are about to take? Remember, each deal presents distinct challenges. Tackle them wisely and.
  • Have you reflected enough on your past experiences and mistakes?
  • Have you consulted an expert advisor for a second opinion on your decision?

Determining answers to these questions will serve to offset the ‘overconfidence bias’ into your investment patterns.

How do we help?

Overconfidence is largely a result of misjudging one’s own judgement. At CAGRfunds, we give you the “second opinion” that you might just be looking for. We not only conduct a FREE audit of your current portfolio, but also give you the right financial advice for all your future goals. We therefore ensure that you do not mistakenly take very concentrated exposures to a particular asset class.

Write to us at contact@cagrfunds.com for a FREE audit of your existing portfolio.

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Salary over by 15th? 6 ways in which you can make it last longer

‘A penny saved is a penny earned’. Yet every month there comes a time when we have to choose between an evening out with friends or a boring dinner at home. Yes, a financial crunch is a bad situation but the truth is that we have all been there and done that. So let us tell you simple yet effective ways to last your salary a little longer.

1. Start budgeting:

Have an opinion on the Annual Budget? Well, how many of us have documented a budget for ourselves? There you are – Step 1: Budget your expenses. This helps us prioritize and thus keep a check on discretionary expenses. So yes, this means you cannot set aside money for a pair of shoes without paying your insurance premium. Learning how to choose what purchase desire can be postponed is probably the key here.

2. Make a list:

How many times have you gone out to the neighborhood departmental store and returned with stuff you had not planned to buy? Making unnecessary purchases is a tempting urge. And the best way to control this urge is to make a list of what is necessary and stick to it firmly. Tick the ones that you’ve taken and look only for those present in the list.

3. Do not get lured by combo offers

How exciting are BOGO (Buy One Get One) offers!! Sometimes they excite us so much that we end up buying 2 of something we didn’t need at all. If you are on a tight budget, this temptation could be dangerous. Allocation of money on the basis of need is the essential element here. Deals like these are usually to tempt the customers to buy things they don’t want. Are you going to fall prey to this tactic? Now you won’t!

 4. Use Prepaid plans

Despite excellent postpaid plans, we tend to be careless about the frequency and duration of our phone calls. Long distance calls, roaming and data consumption is something we don’t really keep a tab on. If this describes you, then you probably need to shift to a pre – paid plan. A pre – paid plan will not only help you reduce your phone bills, but will also help you inculcate a habit of putting a budget to the same.

5. Restrict usage of credit card:

While usage of plastic money is something even our Government is encouraging, it has its own flip sides. You must have felt the psychological difference when you pay with cash vs a credit card. When the crisp notes flow out of your wallet to the cashier, you tend to realize the amount of expense you are making. However, with a credit card, we sometimes don’t even look at the bill and just hand over our card for a convenient swipe. It is only when we get our credit card bills that our eye balls tend to drop out. Therefore, it is almost compulsory for us to restrict usage of credit card. We also recommend that you minimizing the number of credit cards you possess. However, as we move towards a cashless economy and rightly so, using a debit card is better to keep expenses in check.

6. Pay your credit card dues on time:

Often times, we overlook the due date of our credit card bills. While the bill amount might be low, penalty charges for late payment can be as high as 36% annually. Unknowingly, a sizable cash outflow indeed. It is therefore of utmost importance to pay our credit card bills before due date. A helpful tip in this regard is to pre schedule the payment a day prior to the due date. That ensures that the bill is paid even if we forget or get busy with something else.

How do we help?

At CAGRfunds, we help you craft a financial plan which will help you manage your salary better. We guide you to make disciplined investments right at the start of the month. This enables you to not worry about savings. As a result you become more organized with your spendings.

Whatsapp or call us on +91 9769356440 to know more.