Blog

-

March 1, 2022

Financial planning means bringing the future into the present so that you can do something about it now. Financial planning is a process of utilizing available financial resources in the best possible manner to achieve your goals. It is not just about investing money; it is about investing money the right way, to achieve specific financial goals.

But why do we need to do financial planning and which tools should be used to do it?

Why is financial planning necessary?

Let’s try to understand the need for financial planning through a story.

This is the story of Mr Kumar & Mr S.Kumar.

Mr Kumar is 40 years old. He has a job in an MNC and he earns a decent salary. Like the rest of us, he works hard, earns well & makes sure that he enjoys life off the money he makes. Despite earning well, most of the time, Mr Kumar remains under pressure due to lack of money at the end of every month, not only that he is still living in a rented home & uses public transport for his commute.

Financial Planning

Now let’s meet Mr S Kumar, a colleague of Mr Kumar’s (Age 35 years) with the same salary structure. Mr S Kumar manages his finances well and by the end of every month, unlike Mr Kumar, has spare money left with him. Not only Mr S Kumar lives in a self-owned house and owns a car, he also has sufficient savings and has done investments in multiple avenues.

Why? What’s changed?

It is because Mr S Kumar understands the importance of financial planning.

He knows very well that –

Inflation Kills

Inflation eats away your money. You must have heard from your father that he would purchase petrol at Rs.30 per litre and today petrol costs around Rs.100 per litre. This steady rise in the price of goods and services is called inflation.

Emergency Fund is extremely important

You never know when a financial emergency could come knocking at your door. Whether it is unexpected medical situations, accidents or loss of job. Uncertainty is the only certainty in life.

Retirement Corpus is vital

With pensionable jobs, our parents had it easy. The government used to wholly fund an individual’s retirement by contributing to the pension funds. Today, a part of our salary is deducted for the same.

Owing to the increased cost of living, our parent’s retirement funds might have been sufficient in the past. But we need to plan better, to live a comfortable retired life with sufficient funds to our name.

Insurance is essential

Insurance is a protection against unforeseen events that can cause financial distress. Insurance provides protection against events such as accidents, unforeseen damage to property, medical mishaps and even death.

Investments are attached to goals

Each investment you make must take you a step closer to your financial goals. Investment without goals is like firing a bullet into the vacuum. Goals could be planning your taxes, a dream holiday, buying a car etc.

Cash Flow management is Key for success

You need to utilize your financial resources effectively. This is where cash flow management – earning and spending money plays an important role in financial success.

Financial Viability is crucial

We need to understand that financial viability is crucial. Financial viability means generating sufficient income and constantly upgrading lifestyle with a growing need.

So, from above it is clear that Mr S Kumar has better financial management & control compared to Mr Kumar. He has planned his finances and invested accordingly to achieve his goals.

Also read – Financial Planning Real conversation – Vaniya Buddhi

So if you want to be like Mr S Kumar or if you are in a situation similar to Mr Kumar’s you plan your finances.

There are two ways of managing your finances:

#1 DIY – Free Financial Planning Tools – Recipe

Financial planning done by oneself with limited help of an expert, excel sheet, or tools is known as DIY (Do It Yourself) financial planning. This type of financial planning is preferred by people like Mr S Kumar who understand the basics of financial planning.

Here are the steps to follow while doing financial planning –

Step -1 Know how much you can invest.

Step-2 Set your goals.

Step -3 Invest in line with the goals you set.

Step-4 Keep an eye on your investments. But do not get overly involved with every minute detail.

Step -5 Maintain a prudent emergency fund to be able to cushion possible adverse situations.

If you are interested in planning your own finances, you can use a tool called Recipe by Finology that will help you in managing your finances. Recipe is easy to use, and free from human bias due to A.I. based recommendation.

This tool has four segments, Prosperity Ingredients, Financial Appetite, Goal Planner and Financial X-ray.

Prosperity Ingredients

It is extremely important to know your current financial status before engaging in financial planning. The Prosperity Ingredient segment helps you in assessing your financial position. This segment has four “ingredients”.

Emergency Fund

Under the Emergency Fund section, you can check if you have sufficient emergency funds for the future or not. You need to input your monthly income, details about your bank balance and select ‘stability’ of your income from the dropdown.

emergency fund

Once you click the “Find Problem” button, Recipe automatically gives you a response about your required emergency funds. It also displays your emergency fund score.

Insurance Planner

Under the Insurance Planner segment, you need to provide information about your current life and health insurance amounts. You will get an instant answer whether you have adequate insurance cover or not.

Debt Diagnosis

The Debt Diagnosis segment is for analysing your debt situation. Here, you need to enter your income, loan, EMI and savings details to get a debt diagnosis.

Spending Habits

The Spending Habit segment helps you gauge your income and expenses. Based on your income as well as spending habits, Recipe will find out for you whether you are overspending or saving.

Also Read – DIY, Salesman or Financial Planner what is your choice?

Financial Appetite

The ‘financial appetite’ section assesses your financial standing and your attitude towards risk and determines the right investment style that suits your income, goals and risk preferences.

Goal Planner

Goal planner contains readymade goal sections such as child marriage, vacation planning, wealth creation, dream car, dream home, children’s education, retirement planning etc. You can plan for each goal by giving simple inputs.

Financial X-ray

The ‘financial x-ray’ section gives your complete 360-degree financial report. This report will help you in managing your finances and taking clever steps to boost your net worth.

Importance of Investment

As we learn that investing money in the right investment option is extremely important for financial planning, if you keep on investing money without properly analyzing, you may end up in a messy situation. You should have defined financial goals as the knowledge to execute those investments. There is a tool called Quest that offers courses on complete personal finance.

These courses cover the following –

Importance of saving money
Why investing is so important
Why debt funds & insurance are essential
Importance of Goal planning & asset allocation

#2 Hire Financial Planning Services – Paid

You need financial planning services if you –

Don’t have time & energy to do your own financial planning
Don’t have sufficient expertise in areas of investment, insurance, retirement planning.
Don’t know how to manage finances in a better manner
Seeking professional opinion about your financial plan

If any of the above questions apply to you, it may be time to take help from a financial planner to achieve financial success.

Conclusion

Financial planning is crucial nowadays. You should do financial planning for a better financial future. You can make use of DIY financial planning tools or hire financial planning services for financial planning.

What Is The Difference Between a Trading Account And Demat Account?

Stock Market

Shitanshu Kapadia

-

February 28, 2022

0

What Is The Difference Between a Trading Account And Demat Account?

You should be conscious of quite a few fundamentals if you really want to be involved in the share market. A Demat account and a trading account are two of the most crucial prerequisites of the stock exchange.

A Demat account is a type of account where you may keep your shares or even other types of investments in a dematerialized form. A trading account online allows you to exchange. Despite the notion that both accounts are critical, many individuals are confused about them. This article discusses the major differences between trading accounts and Demat accounts.

Trading Account Demat Account

Demat Account

A Demat account helps to keep your securities in digital mode. It turns physical assets into digital forms, thus dematerializing them. When you open a Demat account online, you will indeed be granted Demat card details, which will allow you to complete your trades online.

The operation of a Dematerialized form is pretty similar to those bank accounts in that you maintain your money and have the choice to deposit and withdraw it. The assets are also kept debit and credited into your Demat wallet. Users do not require any securities to start a Demat portfolio; in fact, their account might just have a nil balance.

Trading Account

The trading account is required to perform stock trading activity. This is because when an enterprise’s shares are listed on the stock exchange, they may be traded on an automated device via a specific account referred to as a brokerage account. One can obtain one of these accounts by enrolling with a company or a brokerage. You are given a unique trade Account ID alongside this profile, which allows you to do trading activities.

Trading vs Demat Account

Now, take a look at some of the key distinctions between a brokerage and the Demat account.

Variations within Accounts’ Nature

A dematerialized portfolio, often known as a stock account, stores electronic shares, treasuries, sovereign bonds, and unit trusts. The trading account is used to exchange the financial commodities stored in a share account on the share market.

Here’s an example from actual life: Assume you already have 1,000 rupees inside your wallet (— in other words, a trading account) and stroll into a retail shop (i.e. the share market). You buy numerous goods and bargain. You subsequently pay the required amount that is actually in your account. In this situation, your purse is the trading entity because it provides the cash for the exchange. Because the commodities you acquired are now inside your shopping basket, it is also the Demat profile.

Differences in terms of Compliance

To open a Demat account or trading account, you must first contact a SEBI-approved dealer as well as a Depository Operator (stockbroker) licensed with either NSDL or CDSL.

These permits are not necessary for a trading profile. However, the maximum of demat or even trading profiles that an individual can have is not restricted – albeit having many accounts is pointless. Customers can get more than a single trading profile with a stockbroker because the accounts are individually tied to the PAN cards.

Each DP has its own set of brokerage charges. Users should double-check all of the costs and compliance certifications that are often posted on their web pages.

Differences in Functionality

A Demat account’s primary role is to store securities; however, it also serves the purpose of re-materialization, which is the transfer of stocks from digital to physical form.

The function of selling and purchasing securities is the brokerage member’s obligation, whether under the customer’s instructions or even by the customer personally. If a dealer wants to engage in currency, for example, just a trading profile is needed; however, both profiles are necessary if a dealer wants to deal in equities.

Conclusion

As a result, to hold stocks electronically, you must open a Demat Account. Also, the trading account is required to participate in stock exchanges. Both are different but essential elements of the marketing process.

So, you must start your trading experience with a full grasp of the sector and its instruments after creating Demat and Trading accounts. Users should always seek expert advice before investing in stocks since they are exposed to substantial market risk.

How to e-verify ITR without login to e-fling account?

Incometax

Shitanshu Kapadia

-

February 28, 2022

0

How to e-verify ITR without login to e-fling account?

Now you can e-verify your ITR without login into e-filing account. This new facility is recently launched on the Income-tax website. The main objective behind this facility is to enable taxpayers to get quick access to e-verify ITR return.

Verifying an Income tax return is an extremely important step. It is the last step to complete the income tax return filing process. After filing an income tax return, you have to make sure that you have completed verification of ITR. The processing of ITR takes place only after verification. If you forget to verify ITR within the declared deadline by the Income tax department, your ITR is treated as invalid.

Many taxpayers assume that once the ITR XML file is submitted, ITR is filed and the process is over. However, it is not true. The taxpayer has to compulsorily carry out the ITR verification process.

The new feature launched on the Income Tax website allows e-verification without login to an e-filing account.

How to e-verify ITR without login to e-fling account?

Step 1 – You need to visit the e-filing portal of the Incometax department. On the home page under the quick links section, you will find a feature called “e-Verify Return”

e-verify income tax menu

Step 2 – On clicking the “e-Verify Return” button, you will be taken to the e-verification ITR page. On this page, you need to provide your PAN number, select the assessment year, enter the acknowledgment number and mobile number.

e-verify incometax return new facility

Step 3 – After entering this detail, press the continue button. You will receive a six-digit OTP on the mobile number. After entering OTP, you need to press submit button.

After successful verification of OTP, ITR that you want to verify will be displayed on the screen.

In case you are verifying your ITR after 120 days of filing a return you need to select the reason for the delay from the drop-down menu. E-verification in this case would be a conditional request. After selecting the reason, you need to click on the continue to button.

Step 4 – In case you are verifying your ITR within 120 days for filing, you can directly select any of the following options and process for e-verification

Generate Aadhaar OTP
Existing Aadhaar OTP
Existing EVC
Generate EVC through Bank Account
Generate EVC through Demat Account
Generate EVC through Bank ATM option (offline method)

Basic Requirements for using new e-verify ITR facility

Basic requirements of using a new facility to e-verify ITR are given below.

You have to file ITR on the Income-tax portal before using this facility.
You should have the acknowledgment number of ITR which you want to e-verify.
This facility of e-verification is available only for the return filed for Assessment Year 2019-20 onwards. This means you cannot use this facility for old returns.
The new facility of e-verify can be used only for returns where a digital signature certificate (DCS) is not mandatory.
The e-verification is to be done with individual capacity. Returns filed by an authorized signatory or representative assessee cannot be e-verified using this facility.

Please note that the old facility of doing e-verification via login to the income tax portal is still available. This is an additional facility given to the taxpayer to quickly e-verify income tax returns.

Is it mandatory to Buy Home Insurance with a Home Loan?

Shitanshu Kapadia

-

February 25, 2022

0

Is it mandatory to Buy Home Insurance with a Home Loan?

Home Insurance – Home loan has become an essential element, whenever you buy or construct your dream home. This is mainly due to the ever-increasing property price. You can easily get a home loan at an affordable interest rate from a bank or finance institute.

You may come across an incident where a bank or financial institution from where you are taking a home loan forces you to get home insurance as well. They may even refuse to process home loan cheques unless you buy a home insurance (property insurance) policy from them.

Recently, I have come across a similar incident.

My friend has recently applied for a home loan at ICICI bank. His loan was processed and a sanction letter is issued. Now, he has been a force to purchase property insurance along with a home loan. He is totally confused and he has posed two questions in front of me – Do I need to purchase home insurance? Is it mandatory to Buy Home Insurance with a Home Loan? What to do If I don’t want to buy home insurance with a home loan?

Let’s try to find out.

home insurance home loan

Should you buy Home Insurance?

Home insurance policies are offered by general insurance companies. These policies provide coverage against financial losses, which might occur due to damage caused to the property by natural calamities, theft, fire, etc.

You will be spending your entire life-long savings while buying property. So, you have to ask yourself that do you want to protect your entire lifelong saving by insurance or not. If your answer is yes, you should go for a home insurance policy that will cover your property from unforeseen events.

What are the catch points in buying home insurance policy along with a home loan?

(1) Home insurance policies, that are sold along with home loans are term home loan insurance or home loan protection plan, which covers debt in case of the untimely death of a borrower. The premium amount need not pay up front but need to be added in EMI. Thus your EMI amount increases marginally. You may not even consider it but if you calculate, it will be significant.

E.g – For 30 to 50 Lakh coverage your will be paying Rs.35000 to Rs.40000 for your loan tenure.

(2) The insurance policy you purchase with a home loan is not portable. This means if you want to transfer your home loan to another bank this policy could create a hurdle.

(3) In case you want to close your home loan prematurely, you may lose the entire or part of the premium paid on insurance.

(4) You cannot surrender this policy as it is a clubbed policy and you cannot claim even tax benefits.

From above, it is clear that home insurance policy sold like this are expensive, does not offer tax benefits, and create a problem for you. Now is it mandatory to purchase?

Is it mandatory to Buy Home Insurance with a Home Loan?

First of all, it is not mandatory to get property insurance but some lenders insist on it as they are distributors of such policies and get commission on the same. In most of the cases, home loan agents ask for such policies. Another reason for asking for insurance cover is the bank wants to protect their self-interest in case you fail to repay the loan.

As a home loan borrower, it is entirely your discretion to buy the insurance policy and it can not be forced upon you. There is no regulation or requirement to have property insurance. It is a bank or financial institution’s internal guideline. RBI or IRDA has never issued any mandate on this.

Secondly, if the bank shows their internal guideline and asks customers to purchase a home insurance policy for a home loan they can’t make it mandatory to buy a policy from them only.

Now if you have applied for a home loan and the bank is asking you to purchase home insurance and you don’t want to go for it what you should do?

What to do if you will be forced to buy home insurance with home loan?

In case the bank force you to buy home insurance from them you can take the following steps.

Understand from bank officials that it is a basic home structure cover policy or home loan protection plan. Also, check if the premium is to be paid separately or clubbed with a home loan EMI.
Compare premium with other similar policies available in the market and premium is low compared to what is offered you can ask bank officials.
You can also ask a bank executive or agent to produce guidelines from RBI or IRDA mentioning that it is compulsory to buy home insurance with a home loan.
If bank officials still force you to go for a home insurance policy with the home loan you can make compliant with a bank manager.
In case the bank manager does not listen to you, you can threaten them by saying that you will file a complaint with the banking ombudsman regarding this compulsory clause.

If you don’t want to change your bank as your loan is approved and you have paid processing fees you can purchase a home insurance policy and return the policy within the first 15 days of free-look period.

Final words

Do not blindly purchase a home insurance policy from the bank where you have taken a home loan due to trust. Try to understand the positives and negatives of the product before making a final call. Also, compare policy premium with other available policies in the market.

Note – The purpose of this post is not to write against any bank or financial institution. It is to prevent malpractices and cross-selling that currently taking place in the market by using an existing channel to fool the customer by packaging two or more products.