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* WHY TO INVEST ?

 

1. Multiply your Money

Investing your money can allow you to grow it. Most investment vehicles, such as stocks, certificates of deposit, or bonds, offer returns on your money over the long term. This return allows your money to build, creating wealth over time.

 

2. Save for Retirement

As you are working, you should be saving money for retirement. Put your retirement savings into a portfolio of investments, such as stocks, bonds, mutual funds, real estate, businesses, or precious metals. Then, at retirement age, you can live off funds earned from these investments. Based on your personal tolerance of risk, you may want to consider being riskier at a younger age with your investments. Greater risk increases your chances of earning greater wealth. Becoming more conservative as you grow older can be wise, especially as you near retirement age.

 

3. Earn Higher Returns

In order to grow your money, you need to put it in a place where it can earn a high rate of return. The higher the rate of return, the more money you will earn. Investment vehicles tend to offer the opportunity to earn higher rates of return than savings accounts. Therefore, if you want the chance to earn a higher return on your money, you will need to explore investing your money.

 

4. Obtain your Financial Goals

Investing can help you reach big financial goals. If your money is earning a higher rate of return than a savings account, you will be earning more money both over the long term and within a faster period. This return on your investments can be used toward major financial goals, such as buying a home, buying a car, starting your own business, or putting your children through college.

 

5. Reduce Taxable Income

As an investor, you may be able to reduce your taxable income by investing pre-tax money into a retirement fund, like a 401(k). If you generate a loss from an investment, you may be able to apply that loss against any gains from other investments, which lowers the amount of your taxable income.

 

 

SIGNIFICANCE OF PORTFOLIO MANAGEMENT

 

  • Stable Current Return: Once investment safety is guaranteed, the portfolio should yield a steady current income. The current returns should at least match the opportunity cost of the funds of the investor.

 

  • Marketability: A good portfolio consists of investment, which can be marketed without difficulty. If there are too many unlisted or inactive shares in your portfolio, you will face problems in encasing them, and switching from one investment to another.

 

  • Tax Planning: Since taxation is an important variable in total planning, a good portfolio should enable its owner to enjoy a favorable tax shelter. The portfolio should be developed considering not only income tax, but capital gains tax, and gift tax, as well. What a good portfolio aims at is tax planning, not tax evasion or tax avoidance.

 

  • Appreciation in the value of capital: A good portfolio should appreciate in value in order to protect the investor from any erosion in purchasing power due to inflation. In other words, a balanced portfolio must consist of certain investments, which tend to appreciate in real value after adjusting for inflation.

 

  • Liquidity: The portfolio should ensure that there are enough funds available at short notice to take care of the investor’s liquidity requirements. It is desirable to keep a line of credit from a bank for use in case it becomes necessary to participate in right issues, or for any other personal needs.

 

  • Safety of the investment: The first important objective of a portfolio, no matter who owns it, is to ensure that the investment is absolutely safe. Other considerations like income, growth, etc., only come into the picture after the safety of your investment is ensured.

 

* What is Sustainable investing ?

Sustainable investing describes investment strategies that incorporate ESG considerations into investment decisions to better assess risk and opportunities. These strategies usually seek to reach one or more of the following objectives:

• Encourage positive environmental, social or governance practices

• Align investments with personal values

• Improve portfolio risk/return characteristics

 

Reasons investors may consider sustainable investing

  • Risk mitigation
  • More conscious approach to investing
  • Long-term performance
  • Align investing with personal or religious values
  • Fiduciary duty

 

* Difference between portfolio management and mutual fund

A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.

 

What is a mutual fund in India ?

A mutual fund in India, collects and invests your and other investor’s money, in stocks, bonds or even a mix of stocks and bonds. The total investment made by the mutual fund, either in stocks, bonds or a mix of both, is divided into units. Depending on the cash you invest, you are given units of the mutual fund. The NAV (Net Asset Value), gives you the value of the mutual fund.

 

The portfolio is a collection of investment instruments like shares, mutual funds, bonds, fixed deposits and other cash equivalents etc. Portfolio management is the art of selecting the right investment tools in the right proportion to generate optimum returns from the investment made.

 

What is portfolio management in India?

Portfolio management is simple…Select the right investment, which gives maximum return, but at minimum risk. PMS services, come under the alternate investments fund, category. It is a type of wealth management service/portfolio management process, offered to the rich and wealthy in India. HNI’s and the rich and wealthy in India, love portfolio management services (PMS), and use it to invest in stocks. PMS (Portfolio Management Services), also offer investments in fixed income securities (debt), but few investors opt for this service. PMS services are offered by brokerages and mutual funds, which have been registered with SEBI. The portfolio management process is aided by a portfolio software.

 

* Things you should know about PPF

  • PPF - a government backed long term small savings scheme

Public Provident Fund (PPF) is a scheme of the Central Government, framed under the PPF Act of 1968. Briefly, the PPF is a government backed, long term small savings scheme which was initially started by the Government because it wanted to provide retirement security to self-employed individuals and workers in the unorganized sector.

It is today the most popular investment made by Indian citizens. If you are keen on a safe investment, a decent rate of return, tax benefits (deduction and tax-free interest) and have a long-term investment horizon, then the PPF is for you. It is a disciplined investment avenue as your money is blocked for 15 years.

 

  • How do I open a PPF account? What should I keep in mind when opening my PPF account?

Head over to your nearest State Bank of India branch, or a branch of any of State Bank’s subsidiaries. You can also open an account in select nationalized banks, and the post office. Fill in the form, attach a photograph, state your PAN Number, and you’re done. Once your formalities are completed, you will receive a pass book which will record all your PPF transactions.

At any point in your life, you are allowed to have only 1 PPF account in your name. You can also have an account in the name of a minor child of whom you are the parent / guardian. However, that will be the child’s account, you will simply be the guardian. You can never have a joint account. 
If at any time it is seen that you have more than 1 account in your own name, the second account will be deactivated, and only your principal will be returned to you.

If you have a General provident Fund account, or an Employees Provident Fund account, you can still have a PPF account – there is no restriction.

 

  • Can an NRI open a PPF account?

The rule of 25th July, 2003 states that ‘Non-Resident Indians are not eligible to open an account under the PPF Scheme’. However, ‘Provided that if a resident who subsequently becomes a Non-Resident during the currency of the maturity period prescribed under the PPF scheme may continue to subscribe to the Fund till its maturity, on a Non-Repatriation Basis.’ 
So, if you open it as an RI, and during the 15-year tenure become an NRI, you can continue to invest, but on a non-repatriable basis.

 

  • When is the best time to invest in PPF account?

The best time to invest is between the 1st and the 5th of any month, preferably April each year. Interest is calculated for the calendar month on the lowest balance at credit of your account, between the close of the 5th day and the end of the month and is credited at the end of every year.

 

  • is a Loan against PPF account allowed?

Yes, loan facility is available against a PPF account. The first loan can be taken in the third year of opening the account i.e., if the account is opened during the year 2010-11, the first loan can be taken during the year 2012-2013. The loan amount will be restricted to 25% of the balance including interest for the year 2010-11 in the account as on 31/3/2011. The loan must be repaid in a maximum of 36 EMIs. You can take a second loan against your PPF account before the end of your sixth financial year, but your second loan can be taken only once your first loan is fully settled.

 

  • Are withdrawals from PPF account allowed?

Any time after the expiry of the 5th year from the date that the initial subscription is made, you become eligible to withdraw an amount of not more than 50% of the previous year’s balance or of the 4th year immediately preceding the year of withdrawal, whichever is less. If you have taken any loan on your PPF, this also gets factored in and reduces your balance. You cannot make more than a single withdrawal in the year. You need to apply with Form C for any withdrawals.

 

  • What happens after PPF account matures?

You have 3 choices.

Either you can withdraw your maturity amount, or you can extend your account by a 5-year block, as many times as you want and make fresh contributions, or you can extend the account without making any further contributions and continue to earn interest on it every year. 

1. If you decide to withdraw your money, your maturity value is exempt from tax. 

2. If you decide to extend your account and continue making fresh contributions, you can extend it for a block of 5 years at a time, as many times as you want, you can also make withdrawals from the account, up to 60% of the account balance that was there at the beginning of the extended period. Just remember, if you choose to extend your account, submit the necessary documentation for extension before one year passes from the maturity date. 

3. If you choose to extend your account without making any fresh contributions, you can do so. In this case, any amount can be withdrawn without any restriction; however, you can only withdraw once per year. The balance will continue to earn interest till it is withdrawn.

 

* Why you need Retirement plan?

  • Longer life expectancy: The life expectancy of humans is consistently increasing across the world thanks to technological advancement in medical sciences. In India too, the average life expectancy of an adult of age 60 has extended to almost 78. That means 18-20 years post the working years (depending on whether you retire at 58 or at 60). To put this into context, think about the oldest person that you personally know. We can tell that age would go easily above 85. What if you too end up living longer than the average of 78?
  • Government pension is no longer applicable: Most of us have grown up watching our parents work for government jobs. While that meant slightly lesser salary during the working years, it came with the comfort of a pension for a lifetime after retirement. Since 1st January, 2004 the government has done away with the practice of providing pension for new joiners and replaced it with NPS (National Pension System). Escalating cost for healthcare: Picture this – you are a very health conscious person who watches what they eat and is regular at exercising as well. In the headiness of youth, you might assume that health-wise you are bound to always remain fit. That, unfortunately is not the case. Even the best-oiled machines develop enough faults with the wear and tear over years of use. And while a good updated health insurance policy can cover some costs, no health insurance policy will cover 100% costs. Another factor to remember is that healthcare costs in India are rising at an astonishing rate of over 10% per annum. That means for a surgery which costs you Rs. 1 Lakh today, it would cost you almost Rs. 17.5 lakh. You see, compound interest works both ways.
  • You cannot work forever: You might think that I am used to a busy work life, I will get bored and do not want to stop working. I say so because the thought has crossed my mind several times. That still is no excuse to not plan healthy finances for retirement. Also, with such a competitive and youthful workforce, older people are bound to be on the end of the priority list, experience notwithstanding. In case you do end up working till later than planned, when has extra money ever harmed anyone?
  • It is never too early to plan: it is never too early to plan for retirement. The earlier you start planning, setting aside money and investing it the easier your path to retirement is bound to look. I am sure you are now tired of hearing the oft-repeated yet true quote: “Compound interest is the 8th wonder of the world. He who understands it, earns it… he who doesn’t pays it” – Albert Einstein.
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