Financial goal: How to plan your newborn’s future over the years

There is a very important financial goal that one must keep in mind and usually people do. But often the journey begins with the day when you have a newborn in your life. In fact, if you follow the right path of financial planning, the planning even for this stage goes way before the birth of the newborn. Let us just dissect the amount of expenses we are talking about for the journey that begins with birth

So, coming to the cost that you incur immediately when you have your newborn, the first thing is bringing the child home. Here is a new human in your life who needs sustenance, who needs to thrive. All the resources that you had, you are going to be sharing with your child as well and you are also going to need additional resources for the care and for this child to thrive.

So, the number one thing we are looking at here is the cost of food. A lot of mothers breastfeed their child, but there are also a large number of mothers who choose to go back to work pretty early on or may not be able to breastfeed their child. In this case, a huge cost of food comes up, like tins of top feed that the child needs, cost nothing less than Rs 4,000 to Rs 5,000 per month. So, being able to budget for this food cost is very important.

Additionally, clothing and shoes and even diapers are all recurring costs because in the initial years, the child is growing very fast and tends to grow out of clothes and shoes very quickly. It is very important to keep up with that.

When you talk about recurring visits to the hospital, that is also another thing that you incur in the first six to eight months of having your child because every month you are making a visit to the doctor, you need to get the baby’s weight checked, get the vaccinations done. All these costs start to pile up and they are all recurring in nature. When you think of these recurring costs, it is important you budget for them in your income.

How do you budget it and start planning for these kinds of recurring expenses? Broader goals, everyone plans, but how can we plan for these kinds of day to day expenses?

The first step that you need to do here is to try and pre-empt as many expenses as you can. Now, everything is not predictable, depending on what your values are. So, a lot of parents choose to make do with what they have at home for certain things like, cradling the baby and creating an environment for the baby at home.

There are certain other parents who would want to childproof their house, buy certain types of furniture, have a cradle, buy a carrier, buy a pram. It completely depends on what your values are and what is important to you in terms of the lifestyle you want as a parent, as a new parent that too. I would say the beginning of this whole thing is just before your delivery, a few days before your delivery, if husband and wife can sit down, if the two spouses can sit down and have this conversation around what are all those costs that you are going to incur on a recurring basis.

Apart from that, it is also important that we look at some of the one-time lump sum costs that you are going to incur immediately after the baby’s born. So, for example, buying this furniture for the child, buying a carrier for the child, buying a pram for the child, buying a seat for the child that goes and fits into your car, a baby seat, these are not small costs. These are all in multiples of 1000.

You definitely need to sit down and create a budget for yourself, at least based on whatever you can pre-empt and, of course, there are certain expenses that are going to come up which you never expected. Make sure that you also set aside a fund for some of these unplanned expenses.

So, let us move on and let us also talk about your loan portfolio, which you might really want to get rid of before this major event in your life.

Talking about loans, one of the important things is that this is also a stage where you may be having loans for a home that you are purchasing. So, you may be paying off a home loan EMI, you may have also bought a car and you may be paying off the car loan EMI as well. So, this is a stage in life where there is a possibility that there will be certain loans outstanding which you may not be able to completely wish away after the baby’s born.

I would say that when you look at your income, it is important that you have a plan around how you are going to set aside money for paying off your loan EMIs, making sure these recurring costs of your life are taken care of and at the same time, you are able to set aside something for future you.

One of the first steps that you need to take after the baby is born, is to make sure that you have a term life insurance cover and I would say that this is a very important step because the elephant in the room after this baby is born is what happens in a situation if either parent is not around or if both parents are not around. In this case, it is very important that you have an insurance policy in place that gives you that peace of mind and also ensures that your obligations like these loans, as well as the expenses and future goals of your child can be taken care of via insurance claim.

What are we talking about over here is also that you need to have your short term goals where it could be having your child, first kindergarten or primary school expense that you need to take care of and longer duration goals can be planned on maybe slowly and after doing a bit of research and whenever it suits you. So how do you actually go in for this, keeping in mind a three-year time frame or a four year time frame, how do you decide on the investment instruments for the primary education expenses?

If you look at it, there are three categories of three phases in the child’s life that you want to take care of. So one is your kindergarten and primary school, which is more of a short to medium term horizon that you are looking at. Then you have the long-term horizon where you want to take care of the child’s secondary education; then there is also taking care of the child’s undergrad college education, post grad education and maybe even the child’s marriage for that matter.

So as a priority, if you had to look at your income, you’re paying off your loans first, you are ensuring that the immediate costs are taken care of. Apart from that, you are also setting aside some money for your own retirement, as well as long-term goals for the child that are important to you because this compounding effect that you can leverage in the long term is something that is very, very important. And that should be your priority.

Now, when I say that, think of college education, undergrad, post grad, as well as child’s marriage because these are goals where inflation will also have a compounding effect. So you want to keep up or at least try and beat inflation.

The second thing is, you have enough time horizon to make small investments towards it and get to that number. Coming to the short term goals that you spoke about, for the short term goals, since these are also recurring in nature, your kindergarten is going to be a recurring cost that you have year on year and same with primary school education and your secondary and your middle school education.

Is there a way that you can think about it, in the sense that you can budget for it in your annual income itself? School education, for example, if it is going to cost you two to three lakhs, you need to think of a way in which you can take care of this annual recurring cost by making sure that you set aside money from your annual income.

So one way to look at it is to say that I will start a flexible recurring deposit or a liquid fund or a short duration fund, where I am setting aside these amounts as and when they are available to me because these are flexible contributions that I can make and I can set it aside for a short term.

The other thing is that I budget for it and when the amount is needed, I have it set aside in my savings account.

What also happens is, you have a new one in your life, at the same time, a lot of couples are also growing up in their careers. They have enhanced income and more expenses lined up. How do you dabble between your expenses and your income and your investment during this crucial phase of life?

The first step here is to make sure that you have a financial plan in place. That is absolutely non-negotiable because the moment you have a financial plan, you will be able to understand and identify the goals that are your immediate priority. What is on my list that is urgent as well as important. Those are the ones that give absolute immediate priority to. So even from your income, you will ensure that those immediate expenses and those short term goals are being taken care of.

Now the second bit is stuff that is not very urgent, goals that are not urgent but are equally important. Maybe you want to ensure that the child’s undergrad education at least is taken care of. At the same time, another important goal is your retirement. So for these two, you may want to set aside money, but maybe do smaller sums now and step it up as the goal gets closer because at this stage, you are going to have so many different competing goals. You have your loan EMIs also to think about and you have your immediate expenses to think about. So I would say you need to sit down and create this plan for yourself and then figure out what your top priorities are.

Source- Economictimes

A guide to securing your child’s future

In the constant swirl of daily life, parents grapple with the timeless question: How can we secure our child’s future? With education costs soaring and parents becoming aspirational to send their kids abroad for studies, financial concerns echo louder than ever.

This Children’s Day, we tell you how to invest wisely in mutual funds for your child, especially if you should start investments in your child’s name or your own.

Investing in mutual funds in the name of the child (minor)

As a parent, investing in a child’s name presents operational challenges. You cannot start a mutual fund in the name of your minor child through many online platforms, such as Groww, Zerodha, and 5paisa.

Moreover, only select fund houses offer the online option through their website. For most, investors have to visit the branch of the fund house to start a mutual fund in the child’s name. The process involves documentation, including the parent’s/guardian’s proof of the relationship with the minor and the minor’s birthdate.

However, the complications don’t end there. The child needs to have a bank account, as the redemption proceeds from the mutual fund will go to that account only. This may pose a risk when the minor gains access to money upon reaching adulthood, especially if they don’t know how to manage money.

Also, the transition from minor to major involves paperwork, including filing a MAM (minor attaining majority) form with the AMC requiring the minor’s KYC, PAN, and bank account details.

All in all, a cumbersome process.

That said, starting a mutual fund in your child’s name can be considered, especially if you are prone to dipping into your investments now and again. Why? Investing in your child’s name is a potent emotion and motivator. It can be a strong deterrent whenever you have impulsive urges to withdraw money from your kid’s fund.

Let’s talk about the taxation aspect

Until your child is under 18, realised gains from the fund will be clubbed with your income and taxed. Even dividend income gets added to your total annual income.

Once they turn 18, your child will be required to pay taxes on the capital gains in case of any redemption from the fund. However, it is noteworthy that annual income of up to Rs 3,00,000 is exempt from tax under the new tax regime.

Choosing the right option

The dilemma extends to where to invest. Most of us search for children-specific mutual funds. On paper, the logic appears sound. But read between the lines, and you’ll notice that most of these funds are a clever marketing ploy.

Let’s illustrate why we say this: A typical children-targeted fund is hybrid in nature – it holds equity and debt instruments – and doesn’t allow you to redeem any money before five years. On the other hand, a regular hybrid fund has no lock-in period, not even a week’s.

What you should do

Create a separate folio, i.e. start a mutual fund investment in your name and make your child a nominee. This will offer a practical solution to the challenges of starting a mutual fund in the child’s name.

Source- Valueresearchonline

Best Financial Planning Tips For This Diwali

Diwali is the biggest festival celebrated in India and this festival brings us various lessons about financial planning which can be implemented in day-to-day life. While many of us plan well ahead of time for Diwali, there are various things that we need to take care to ensure best financial planning for the coming festive season

Most of us work for long hours so that we can make ends meet but we fail to take out the time needed to manage the personal finances. We not only need to earn but we also need to take the time needed to manage the hard-earned money and create that change in our mindset. Diwali is the best time to bring ahead that change and to take care of the financial well being of your family.

Let us now have a look at some of the tips that can help you with financial planning this Diwali !!

1. Start by improving your financial knowledge

Most of us suffer from low returns on our investments, debt traps, being under insured and having insufficient funds for retirement and so on. One of the major causes of such issues is the fact that we were never taught about managing personal finance. You need to have the right knowledge about managing your finance and this is the first step that you will be taking for the financial well being of your family.

2. Create a savings plan for every financial goal

Planning is important in every aspect of life. This is quite essential when it comes to money. One can set their financial goals based on the three kinds, the short, medium and the long-term goals. Such planning will certainly help in your financial well being.

3. Have proper budgeting

People can gain control over unwanted expenses by proper budgeting. By knowing how much you are earning and what is being spent, it gets easy to control finances. Budgeting will also help people to identify the area of high expense and will also help you to evaluate on how unnecessary expenses can be curtailed.

4. Reduce the burden of loans

One also needs to review the existing loans on timely basis to make sure that we only have loans that will help in increasing our net worth in the future. One example for such loans is educational loan. Bad debts are to be paid immediately. A proper evaluation of debts will help us save on the interest.

5. Plan your taxes

Most of us get into a last minute tax planning at the end of the year. You need to do your tax planning by considering your needs, goals and the risk appetite you have. People can talk to financial experts and take help for choosing the best ELSS funds for Tax Planning this Diwali.

6. Take Insurance cover

Insurance is a must now days and is the most crucial thing to remember while financial planning. Most of us do take the insurance cover but it is not adequate. While buying the life insurance policy do consider the important factors like living expenses of the present and future and how much does your family need in case a tragedy occurs. Accidental insurance and property insurance too are to be the part of everyone’s insurance portfolio.

7. Always have an emergency fund

While many of us do plan for the same, not all of us implement it. Our life is full of uncertainty and hence it is necessary to have an emergency fund. This not only helps us with the financial need during emergencies but also saves us from the stress that arises due to financial crisis.

8. Write Your Will

If you haven’t yet created the will, this is the right time to do so. Most of us do not write a will as we think that we do have such assets and also that we have placed a nomination already.  Though nomination is a great help, but it is also advised that one needs to make a will to avoid any family feuds and complications in future.

The above-mentioned strategies will certainly help anyone in preserving their wealth, not only for one Diwali, but for many more to come.

Source- Motilaloswal

What your spending reveals about you

Source- Morningstar

Seven rules of money management

In a world where the relentless pursuit of money often feels like a never-ending marathon, it’s easy to forget that finances should be a means to an end, not an end in themselves. Money, the universal lubricant of life’s machinery, can both power our dreams and ignite our nightmares. It can take us to the heights of joy or plunge us into despair. But navigating this vast, complex terrain need not be a heart-pounding rollercoaster ride.

Enter the world of financial rules – simple, elegant guidelines that can transform your financial journey.

But before we dive in, let’s clarify: these rules aren’t rigid commandments. Generally, we hesitate to offer one-size-fits-all solutions. In fact, we often discourage them. The future, with its tantalising uncertainty, refuses to be tamed. Financial rules are more like stars in the night sky, guiding you through the darkness but allowing you to chart your own course.

6x rule

The first rule is the “6x rule,” a beacon that illuminates the path to financial security. It’s like building a sturdy shelter before you explore the wilderness. Imagine this: before you start investing your hard-earned cash in the stock market’s turbulent waters, you should have a lifeboat ready. This lifeboat is your emergency fund, and the 6x rule is your guide.

Picture this: you’re a regular Jatin, and your monthly expenses clock in at a cool Rs 50,000. The 6x rule tells you to put aside at least six months’ worth of those expenses. So, you multiply your monthly expenses by six – Rs 50,000 x 6 – and you get Rs 3 lakh. That’s the sum you need to stash in your emergency fund. It’s your financial safety net, there to catch you if life throws a curveball.

20x term insurance rule

Now, let’s talk about the “20x term insurance rule.” Life insurance isn’t something we like to dwell on, but it’s a crucial part of a solid financial strategy. Imagine you’re the breadwinner in your family, earning Rs 5 lakh a year. According to the 20x rule, you should consider a life insurance policy that pays out Rs 1 crore if the unthinkable happens. Why Rs 1 crore? It’s simple math: Rs 5 lakh x 20.

Rule of 70

Now, onto the “rule of 70,” a secret weapon against the silent assassin of your wealth – inflation. Inflation is like a sneaky thief that slowly steals the value of your money.

So, how can you estimate when your cash will lose half its purchasing power? The rule of 70 is your answer. If inflation is running at 6 per cent, you divide 70 by six to find out that it will take roughly 11.6 years for your money’s buying power to halve. Armed with this knowledge, you can make smart investment choices to beat inflation at its own game.

Rule of 72

Speaking of investment, let’s meet the “rule of 72.” This rule is your crystal ball for foreseeing when your investments will double in value.

Imagine you’ve parked Rs 10,000 in an investment that earns you 12 per cent annually. Just divide 72 by that 12, and you’ll see that your money will double in about six years. That initial Rs 10,000 will become a magical Rs 20,000.

100-age rule

Now, let’s shift gears and meet the “100-age rule.” It’s a bit like picking the right ingredients for a recipe. In this case, your assets are the ingredients, and the recipe is your financial future.

The rule is straightforward – subtract your age from 100, and that’s the percentage of your savings you should invest in riskier assets like equities. So, if you’re an energetic 32-year-old, the rule says you should invest about 68 per cent of your savings in the stock market, and the remaining 32 per cent in safer assets, like debt mutual funds or FDs.

25x rule

Retirement can be a complex maze, but this rule is your trusty compass. It whispers that you might be ready to kick back and enjoy the fruits of your labour when your savings hit 25 times your annual expenses. If you spend Rs 10 lakh a year, you’ll want to aim for a retirement nest egg of Rs 2.5 crore. That’s Rs 10 lakh x 25. This isn’t a strict deadline but more like a milestone to guide your journey.

4 per cent withdrawal rule

After years of diligent saving, you’ll reach the golden shores of retirement. But how do you make sure your savings last a lifetime? Here’s where this rule steps in.

Imagine you need Rs 10 lakh annually to live your dream retirement. If you’ve saved up Rs 2.5 crore, you can safely withdraw 4 per cent of that every year, which is Rs 10 lakh. The rest of your money keeps growing, like a fine wine getting better with age.

The final word

Now, you might be thinking, “What if my situation is unique? Can these rules apply to me?” Well, the beauty of these rules is that they’re adaptable. They’re like a Swiss Army knife in your financial toolkit – versatile and handy. Your financial journey is unique, and these rules are your trusty companions, offering direction but allowing you to carve your path.

So, the next time you’re faced with a financial crossroads, remember these rules. They’re your North Star, your guiding light in the maze of money. With them, you can turn the chaos of finances into an exciting adventure, a journey to financial well-being, and ultimately, the freedom to chase your dreams.

Source- Valueresearchonline

Howard Marks’ art of risk management

Howard Marks is a name that needs no introduction. His brilliance and insights are the fundamental drivers behind the success of his investment firm Oaktree Capital, reflected in his memos. In his latest memo, ‘Fewer Losers, or More Winners?’, Marks highlights the importance of steering clear of the losers to reduce downside risks.

The Oaktree Capital philosophy

“If we avoid the losers, the winners will take care of themselves” is a line that perfectly captures Marks’ thought process, which later became the motto of Oaktree Capital. Along with risk reduction by avoiding losers, Marks stresses the importance of finding winners.

“If we invest in a diversified portfolio of bonds and can avoid the ones that default, some of the non-defaulters we buy will benefit from positive events, such as upgrades and takeovers. The winners will materialise without our having explicitly sought them out…”

Marks consistently emphasises risk control and evaluating risk rather than just focusing on returns. He continues, “We want the concept of risk control to always be at the top of the mind for our investment professionals. When they review security, we want them to ask not only, “How much money can I make if things go well? but also “What will happen if events don’t go as planned? How much could I lose if things got bad? And how bad would things have to get?” “

Risk control vs risk avoidance

Marks insists that risk control should not be confused with risk avoidance. All investments carry a certain degree of risk. Investing is a forward-looking activity consisting of uncertainty while pursuing attractive returns. Putting money into riskless assets will only lead to risk and return avoidance.

“You can avoid risk by buying Treasury bills or putting your money into government-insured deposits, but there’s a reason why the returns on these are generally the lowest available in the investment world. Why should you be well paid for parting with your money for a while if you’re sure to get it back?”

According to him, risk control is declining to take risks that a) exceed the magnitude of risk you want and b) the reward for bearing the risk is low.

Not all investments are good investments

Marks states that while investing, making a few wrong decisions is unavoidable. Investors can only claim to make the right decisions sometimes. Hence, the selection of a few losers is inevitable. The question isn’t whether you will have losers, but rather how many and how poor relative to your winners.

He says, “Warren Buffett – arguably the investor with the best long-term record (and certainly the longest long-term record) – is widely described as having had only twelve great winners in his career. His partner Charlie Munger told me the vast majority of his wealth came not from twelve winners but only four. I believe the ingredients of Warren’s and Charlie’s great performance are simple: (a) a lot of investments in which they did decently, (b) a relatively small number of big winners that they invested in heavily and held for decades, and (c) relatively few big losers. No one should expect to have – or expect their money managers to have – all big winners and no losers.”

Is it possible to beat the market?

Marks firmly believes there are times when the markets are either overpriced or underpriced. The efficient market hypothesis does not always prevail because of shifting market sentiments. He argues that the potential skills to generate alpha over the market exist in some markets and with a few investors.

He expresses that investors can produce alpha by reducing the risk while giving up less or increasing potential return by taking moderate additional risk. According to Marks, “The choice between these approaches depends on the type of alpha an investor possesses: Is it the ability to produce stunning returns with tolerable risk, or the ability to produce good returns with minimal risk? Almost no investors possess both forms of alpha, and most possess neither.”

Summing up

Risk is unavoidable when it comes to investing. However, Marks, with his years of experience and wisdom, shares how an investor can navigate risks by avoiding losses and, as a result, construct a winning portfolio.

Source- Valueresearchonline

ICC World Cup 2023: How will home advantage impact businesses amid festive season?

India is set to host the 13th edition of the ICC Cricket World Cup after 12 years on home soil starting from October 5. The mega sporting event will see 48 matches spread over the next 45 days. As cricket is the most popular sport in India with a significant viewer base, consumption and media activity will be at its peak, which is already evident in flight/hotel rates, advisory firm Jefferies said in a note.

While the country is rooting for a win in the home venue, investors and brands are also expecting a strong December quarter riding on the sporting fever that is coinciding with the festive season.

This year marks the 13th edition of cricket World Cup and will see 10 teams playing 48 matches over 45 days. The last edition (2019) saw 750 million unique viewers and 14 billion hours of total viewing time. Nearly 12 lakh visitors attended the World Cup matches in person in the stadium in 2011 when India last hosted the event with an average attendance of 25,000 viewers per match.

Jefferies said that while overall consumption should see an upside, there will be winners and losers. Of the 16 weekend days in the next two months, nearly half will see an India match or semi-final/finals. On India match days, there should be a negative impact on footfalls for movie theatres, theme parks, and offline brick-and-mortar retailers. On the other hand, the event should provide a boost to food delivery, quick commerce, alcobev, soft drinks, media, online gaming etc. We expect companies to run world-cup-specific promotions on match days to tap this consumption boost, it said in the note.

World Cup has been a key marketing platform for brands across categories. The first World Cup hosted by India in 1987 was co-branded as ‘Reliance Cup’, while the 1996 version was called ‘Wills World Cup’ due to sponsorships by Reliance and ITC, respectively. Several brands have announced World Cup tie-ups this time too and we expect a surge in media activity in coming weeks, Jefferies said.

India is Cricket and Cricket is India

Cricket’s popularity is evident from the fact that four out of the top 10 most-followed sportspersons globally on Instagram are Indian cricketers, with Virat Kohli leading the pack. The sports industry in India attracts sizeable sponsorship and media spending, totalling $1.8 billion per year, which has grown at 14 percent CAGR in the past decade, the Jefferies release said. Cricket alone accounts for 85 percent of these spends, while all other sports combined account for only 15 percent. Cricketing events attract $900 million annually in media spending, which is 8 percent of the overall advertising spend in the country. It also sees $550 million spending per year in team/on-the-ground sponsorships, according to the release.

Cricket’s growth in India has accelerated rapidly in the last decade, led by the IPL. In fact, the controlling body for cricket in India, BCCI, has seen its revenue grow 10x in the last 16 years, reaching $800 million in FY23. India’s dominance in the sport is also reflected in BCCI’s revenue, which is almost equal to the combined revenue of all other full member countries and 2x of ICC itself. BCCI has also seen the fastest growth over the past decade, the advisory firm added.

Gain for some, loss for others

The World Cup is likely to impact consumption trends over the next two months, which also marks the important festive season in India. Overall consumption may see an upside due to the World Cup, albeit there will be categories that benefit while some others may be adversely impacted, according to Jefferies.

Interestingly, India will play 9 group stage matches over the coming 45 days, of which 6 are being held on weekends, which see high consumption. Further, of the 16 weekend days in the next two months, nearly half will see an India match or the World Cup semi-final/finals.

On India match days, there could be a negative impact on movie theatres, theme parks, and offline brick-and-mortar retailers. On the other hand, it would be a tailwind for bars & restaurants, beverages (alcoholic & non-alcoholic), food delivery, quick commerce and e-commerce platforms, who would also organise their festival events, it said.

Flight and hotel rates surge

Jefferies India hotels and airlines analyst, Prateek Kumar, notes that on India match days, fares have shot up on average by 150 c/80 percent for selective hotels/flights compared to the week prior to match day, with some rates up to the extent of 13x/5x.

While major cities are seeing significant increases in hotel rates, hotels in smaller venues like Dharamsala are completely sold out for multiple days. The rooms are booked for players, support staff, cricket board officials, media etc. apart from booking from spectators. Checks with reservation desks of many hotels in bigger cities also indicate that occupancies for match days are already running high which has resulted in rates rising sharply and rates are likely to mostly increase further closer to match dates.

The World Cup event also coincides with the seasonally strong Q3 for the hospitality industry and the same is likely to benefit both hotels/airlines industry in Q3. Further, airlines are reportedly eyeing cap adds to target the traffic rush.

World Cup impact on consumption across categories

The advisory firm has categorised the impact of the mega sporting event of firms across sectors According to the recommendations: In the food delivery segment: Zomato (positive); in the QSR/restaurants segment: Jubilant Food, Westlife, Devyani, Sapphire, Restaurant Brands Asia, Barbeque Nation (Slightly Positive); alcoholic beverages segment: United Spirits, United Breweries, Radico Khaitan, Sula Vineyards (Positive), in the movie/theatres segment: PVR-Inox (Negative); in theme parks: Wonderla, Imagicaaworld (Negative); in the hotels segment: Indian Hotels, Lemon Tree (Positive); in the airlines segment: Interglobe Aviation (Positive); in the apparel retail/brands segment: Shoppers Stop, Trent, Aditya Birla Fashion, Page Industries, Reliance Retail (Slight Negative); in jewellery segment: Titan, Kalyan Jewellers, Senco Gold (Slight Negative); in e-commerce segment: Nykaa (Slightly Positive); in media arena: Zee Entertainment, HT Media, DB Corp (Positive) and in gaming segment: Nazara (Positive).

Source- Moneycontrol

Navratri 2023: 9 financial lessons that you can learn this festive season

Source- Livemint