Personal Finance Archives - Page 8 of 12 - CAGRfunds

September 9, 2017

Should you save and invest for your child’s education?

If you did your MBA from IIM Ahmedabad back in 2007, you probably paid somewhere around 4 lacs. Your younger sibling would have paid somewhere around 21 lacs this year. That is 4 times of what you must have paid and a staggering 23% annual increase in the fees.

If the cost of education rises at this pace, after around 18 years, your child will need a whopping Rs. 8.7 crores for the same program at IIM-A. Even at a 10% annual increase in cost, that amount would be close to Rs. 1.2 crores.

Education costs have been increasing at a rate higher than the usual inflation. And the same is true for elementary, primary and secondary education. Not to mention the additional cost of coaching that you have to incur at different stages of education. The above numbers clearly indicate a need to focus on how you intend to fund your child’s education.

This article seeks to help you formulate a plan for your child’s dream education no matter how old your child is.

For the sake of relevance, let us have 3 categories:

Category 1: If your child is under 10 years of age

Your child in his early years of schooling and has a long way to go in terms of pursuing his education. Planning for children in this age bracket is the easiest simply because you have more time to save and invest. The earlier you start, the more corpus you create. Following are the 3 things you should be doing if you fall in this category:

Start a monthly SIP in a portfolio of mutual funds with predominant exposure towards equity. The time horizon is long term so you may have decent allocation towards mid and small cap funds, if you risk appetite permits that. This will enable you to create a substantial amount of wealth over the long run (Over 7 years).
Every year, try and estimate the corpus you need to fund the education at both graduation and post – graduation stage. Accordingly, increase your monthly SIP every year to ensure that you are able to garner the required corpus. While SIPs in equity mutual funds will help you create wealth, increasing them every year will ensure that you don’t fall short of the amount you require.
Park a small sum of money in a debt fund for any short term requirements. This will ensure that you have surplus funds available for any contingencies.

Category 2: If your child is between 10 – 15 years of age

Your child is probably nearing completion of school and will soon be ready for graduation years. This means that while you do still have time for post – graduation, you might not have enough time for saving to fund his graduation. Following are the 3 things that you should do:

Park your surplus money in a portfolio of debt equity funds. The split between the two categories will be determined by how many years are you still away from completion of school.
Start a monthly SIP in a portfolio of mutual funds and asset allocation is key for such investments. You may keep an allocation of 30-40 percent in debt funds and the remaining exposure should be in a diversified basket of equity funds. The asset allocation should be monitored regularly and should be shifted entirely towards debt as you approach the time when you would need the fund. This will enable you to create a pool of wealth over the long run (Over 5 years).
Increase your monthly SIP every year simply because you have relatively lesser amount of time to save for the post – graduation requirement.

Category 3: If your child is between 15 – 20 years of age

Your child has grown up is perhaps nearing his post – graduation years. As such you have only a few years before she completes graduation and goes for higher education. Here is what you should be doing:

Park your surplus money in a portfolio of debt funds. The split between the two categories will be determined by how many years are you still away from completion of school / graduation.
Start a monthly SIP in a portfolio of mutual funds and asset allocation is key for such investments. You may keep an allocation of 60-70 percent in debt funds remaining exposure should be in a diversified basket of balanced equity funds. The asset allocation should be monitored regularly and should be shifted entirely towards debt as you reach towards the year when the funds are required. However, your exposure should not include the risky category of mid and small cap funds.
Increase your monthly SIP every year simply because you have relatively lesser amount of time to save for the post – graduation requirement.

How do we help?

At CAGRfunds, we help you estimate the amount of money you will require at every stage of education. We also help you define your most suitable portfolio. As you start investing, we ensure that our tools continue to review and re-balance your portfolio whenever the need arises.

September 4, 2017September 4, 2017

Top 5 Financial Mistakes New Parents Make (And How To Avoid Them)

Being a new parent is a special experience and comes with a learning curve that knocks the sleep off many, quite literally. Surviving on three hours sleep routine is no joke. So is ensuring your finances are as tough as your baby’s grip on your finger. After all, you have an additional life depending on you for survival. Yet, in the midst of the whirlwind a new baby gets into our routines, many give our financial health a slip. Some of these missteps could be costly in the future.

Here are top 5 financial mistakes new parents make and how to avoid them.

Mistake #1: Failing To Make A “Baby Budget”

Having a baby is an experience that’s hard to be taught. The baby brings surprising changes to our lives. But one predictable change is extra expense. Regular doctor check-ups, supply of diapers, formula and other common baby items are not surprises and yet, most new parents fail to allocate a certain amount in their budget for the baby expenses. Every new parent need to carve out a place for the baby in the budget before the baby arrives. Experts advice to start living out that way couple of months before the baby arrives to get used to the change in your
expenses.

So, if you are an expecting parent, put some thought into the potential expenses and make a “baby budget”. If you already have the bundle of joy with you, it’s not too late to plan one now. And do not forget to add emergency funds to your budget plan too!

Mistake #2: Overspending

A direct impact of not having a baby budget is overspending and boy, is it easy to overspend on your new baby! The baby may be tiny but the expenses are enormous. The price tags attached to the shiny new stroller, or the whole stack of new clothes (which she is going to outgrow in a few weeks) could be a real eye opener! But resisting the cute, little baby stuff is hard. New parents spend on too many toys, too many clothes, too many “extra” bottles, bibs, pacifiers
because “just in case”. There is no end to it. At the end of the month, you struggle to figure out why you have no money to buy a shirt because well, you didn’t use the extra-soft burp cloth when the baby happily puked on you. Don’t make this mistake.

Babies are easy to please. They don’t need too much of anything but your attention. Stick to your baby budget and buy only the absolute necessities like new bottles. Don’t hesitate to ask for used toys, clothes from other members of the family or friends with older children. There is no shame in it. You are not only being smart about how to manage your finances, you are also inculcating a healthy money habit in your family. This will ultimately be adopted by your
fast-growing child.

Mistake #3: Life Insurance

A baby’s arrival is special but it’s a life long responsibility that spans from her basic needs of food and shelter through health, education and marriage. The costs add up quickly. According to a 2011 report by The Economic Times , the average cost to raise a child is INR 54.75 Lakhs. If the primary breadwinner dies, what happens to your child’s future? It’s an uncomfortable thought but it’s a responsibility that the new parent needs to take with utmost sincerity. And yet, many new parents make the mistake of not reviewing their life insurance after the birth of their
child. This may be unintentional or ignorance.

Fortunately, it’s not rocket science to fix this mistake. The first step is to estimate the expenses of your family including house, health, child’s education, wedding. As a general rule of thumb, it’s recommended that your life insurance be at least five times your annual salary and the other
expenses mentioned above. If you don’t have a life insurance yet, get one today. And make sure your new baby is added as a beneficiary along with your spouse.

Mistake #4: Child Education Savings

The cost of higher education is rising by a whopping 20% yearly. That means what costs INR 20 Lakhs today will cost an incredible INR 95 Lakhs by 2025. What it means to you is saving for your child’s education is an immediate need. But in the midst of paying for diapers and overspending on toys, new parents let this important savings slip by until a few years. Even waiting till the child turns four years old is a big loss in the long term.

Saving for your child’s education should begin from the day your baby arrives. Investing in mutual funds through SIPs is one of the most effective ways to grow and protect your investments in long term. Companies like CAGRfunds have proven how easy and quick it is to get started with goal-specific investments . What more, CAGRfunds also provides tools to track your investments any day and any time.

Mistake #5: Protecting Your Retirement Savings

It is amazing how our priorities drop to somewhere at the bottom of the list once the baby arrives. Rightly so. After all, you are the parent with the humbling responsibility of giving the little guy a nourishing life. Yet, the baby will one day grow into an adult and leave the nest to pursue his own independence. Until then, you have saved and spent a substantial amount of your earnings on making the child able enough to pursue his dreams. So, once he leaves, where does it leave you financially? It’s important to remember that you are growing older with the child. Your earning years are shrinking. Are you going to forego your retirement savings to pay for your child’s growing expenses?

This is a tough situation but we are a big proponent of protecting your retirement savings with both hands (and legs, if possible!). Your ability to earn more diminishes as you grow older. In fact, your salary pretty much flattens once you hit 40. Which means your best earning years are the first 20 years of your career and that’s exactly when you can save the most. It is imperative that your retirement nest is secured with regular saving and investment plans and is
untouchable through the years of child-rearing.

A new-born baby is the center of joy and pride for parents and nothing in the world matches the happiness. This event could be daunting too but it could be made easier with proper financial planning. Be smart and avoid these financial mistakes new parents make. Your child will thank you for it!

August 15, 2017September 14, 2017

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

July 31, 2017September 3, 2018

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?