Category Archives: Blog

Investment Tips for Startups

Most of the entrepreneurs are serial optimists and are hardly prepared for potential downside of the business scenarios.

May be that’s the reason 9 out of 10 startups don’t see 5th year of their operations and are shut down prematurely. Recently I came across a startup of two young gentlemen who started their QSR (Quick Service Restaurant or Eat Out) @ Sec. 18, Noida, with as cofounders. It was going well in the beginning and then after a couple of months the revenue started falling and they reached to a point where they were not even able to meet their day to day expenses and they were not ready to invest further. They were left with only one option to sell their venture but couldn’t find someone who was ready to buy at the price they were seeking. Finally they ended up selling their belongings to individual buyers and suffered huge losses. Now they don’t want to ever venture into business and are happy with their jobs.

I am not writing this post, to dishearten early starters but for the significance of investing smart when you plan to startup or start with a parallel path. Budget allocation at the time of portfolio management is a most required element of any investment plan. And Startups need to work on both with an abundant buffer or plan B to keep up their risk appetite. We are working with some of the most inspiring and successful startups of this decade and we are happy that our advice and asset allocation has helped them time & again in their businesses.

Have you ever thought ofwhy do so many startups fail – it is not the idea always, at times it is the execution, the planning, lack of funds and even personal reasons? Taking the monetary element of startup as the prime objective, let us try and understand the basics of investments when you are starting up.

What should an entrepreneur keep in minds while investing in a startup? What are the basic investment tips for a startup?

In this blog I’ll answer these questions.

  1. Invest with RoI in mind: Investing without RoI is like playing football without the goalposts. So you need to be objective with your idea, its execution and link everything to the ‘profit’ motive, if you are venturing into a startup.
  2. Keep lock in period in your mind before making investment decision: Investing takes patience. Understand even if your start up is successful it may take 3-5 years to break even. Keep a lock in period of 3-5 years for the investments you make. Or start small, test, review and go easy but ultimately sustain.
  3. Don’t put all your eggs in one basket: It’s good to be optimistic but one should not put all his eggs in one basket. The key is to diversify your investments. To keep their business operational a no. of people takes every rupee out of their savings account or spend from their credit card. Sometimes it works and sometimes it doesn’t. If things don’t go well as you had planned what will be your contingency plan?
  4. Maintain a good contingency cash cushion: Calculate your monthly business as well as your personal expenses and keep aside cash equivalent to at least six months of the monthly expenses.There are Liquid Funds to invest in and create buffer related to various business expenses.
  5. Invest in human capital: The most important capital of any business is human capital. A no. of entrepreneurs ignore this very fact and usually the business is their brain child hence they think they know everything and can develop their employees. You can invest in small SIPs for your employees and keep their investment plans going while they join us as risk partners.
  6. Don’t mix your personal and business assets: We always recommend our startup clients and SME businesses to keep their business and personal portfolio’s separate. The financial goals differ for an individual and a business and that is why it is very important to manage both as different entities for investments and returns.
  7. Save Money: Remember Money Saved is Money Earned. No matter how small it may seem you should always save money. It could be switching off extra lights, Air conditioner, printer, laptop/mobile charger when not in use etc.
  8. Buy Insurance cover: Buying an insurance cover for startups and small businesses is always advised. It helps you keep the spirits up by a default reassurance. Also it saves startups and allow them to sail in unexpected and untimely business situations.

Contact us for any queries regarding best investment options in Delhi NCR  or feel free to write us, contact@sbsfin.com

Stick to your Financial Goals and Investment Plan, Make a Festival Budget

Now that the festival season is just around the corner and everyone in the family, let it be a child or a grown up or an old, has a long shopping list for the festive season. And there’s a very important question we need to ask ourselves, “Are we financially prepared for this festive season?”

The business houses come up with very attractive discounts to ensure the customers do not only buy which they have planned for but also the customers buy more than what they have planned. With the ease of plastic money and credit cards, people tend to spend more as they don’t have to pay upfront for their shopping and they get a credit period of 30-45 days. These special discount offers and credit card many a times lead to impulsive buying and once you start swapping your credit card, it becomes very difficult to resist the temptation of buying more and people end up buying even those things which are of little use to them.

The idea of writing this post comes with some experience, where our clients end up jumping beyond their Financial Goals and ultimately put themselves and their Investment Plans in jeopardy.  But it is completely human – we are all having our default systems in such way that the month of October makes our pockets easy and moods are all about Shopping. And then the beautiful marketing gimmicks add to our spending powers. Keeping the annual trend in mind, we thought to bring an Alert in the form of following Do’s &Don’t’s for this festival season.

So how can we plan our funds for the festive season? Here are some tips which will help you not only to plan your shopping this festive season but also help to utilize your funds in an efficient manner:

HONESTY

Be honest to yourself while creating a festive budget and stick to it. Dramatic changes in your spending patterns during festive season can have severe consequences on your financial health. Festive spending should not be more than 25-30% of your normal spending pattern.

AVOID IMPULSE SHOPPING

Plan your shopping list keeping your budget in mind. Avoid impulsive buying those gifts you din’t plan for.  Distinguishing needs and wants is the key.

PLAN and ACT

Start shopping early. The sooner you start the more information you will have on the products you are planning to buy. Shopping online is also a good idea as you can compare the prices of different online retailers and strike a good deal.

ADOPT THE NO CREDIT POLICY

Pay in cash for, if not all then bulk of, your purchases. People who use credit cards for their purchases spend an average of 30% more than people who buy in cash. Don’t borrow to spend. Remember it costs money to borrow money as it’s not always free to borrow.

CUSTOMIZE and CREATE

Instead of buying, make your gifts. It puts more heart to the gifts and such gifts are valued more than the expensive off the shelf gifts by the receivers. It also brings Personal touch and create better relationship bonds.

DO NOT BOMB your SPEND on MARKETING DHAMAKAs

Sales are irresistible butsaving is irreplaceable. These days the sales are not only offered during the festival season but throughout the year ex., End of Season Sales, Year End Sale, Stock Clearance Sale, Independence/ Republic Day Sale etc. Visualize what you want to save and start saving more and invest what you save.

FESTIVALS are about SAVING- Remember that!

Don’t forget to buy an investment plan. Our ancestors had realized the importance of savings and investments long back and that’s the reason we celebrate ‘Dhanteras’ as a festival wherein people buy Diamond/Gold/Silver. These days we have so many other investment avenues. Buying an investment plan is a must.

I am sure these tips will help you take good financial decision this festive. Spend wisely, save more and invest prudently. Enjoy the Festive Season ahead.

How Much of Income you should invest?

Very often, I am being asked about – what part of income shall be invested. Some clients believe in expenses and savings, others believe in savings, expenses and buffer and their are also few- you say I never thought about investments. I earn, spend and rest is in my bank account. And let me confess – I love them all for their own kind of reasoning. Because as a financial advisor – I now know that we live in a country where Investments are not taught to kids and in most of the houses – it is not even advised.

And it is that reason that we decided to talk about it and set a limit to our income which must be invested on monthly basis.

There are two most fundamental questions when it comes to personal finance:

  • “How much of income you should invest?” and
  • “When is the best time to invest?”

 

In this article I’ll answer both the questions. The standard answer to the 1st question is, “As much as you can save”. Now different people interpret it differently. Someone in his 20s may be happy saving 10% and someone in his 30 may think that he can secure his future by saving 15-20% of his income and someone in his 40s and 50s may find 15-20% very less to secure his future and will try to save more. There’s no thumb/fixed rule when it comes to your personal finance and %age of income you should save and invest as a lot depends upon your personal financial plan, the age of your retirement and there could be a no. of other factors. Usually the general benchmark is 50/20/30 or 50/30/20 rule. Now the obvious question is what’s this 50/20/30 or 50/30/20 rule?

50/20/30 or 50/30/20 Rule:

50% of your Income- Fixed Costs

These are the fixed expenses you incur regardless of where you live and work. These include your house rent, insurance premium installment, loan installments, electricity bills, mobile phone expenses, transportation and other utility bills. These expenses are generally same and you can easily calculate the percentage of your monthly take home income and you need to ensure your fixed cost does not cross 50% of your monthly take home income.

20% of your income- Savings

You must save 20% of your monthly take home income for your financial security. Please note your savings towards your PF should not be figured in this as you need to save 20% of your monthly take home income and not your gross monthly income. You must build an emergency corpus equal to at least your six months gross income and should use it as an emergency fund only.

30% of your income- Variable Expenses

Don’t commit more than 30% of your monthly income for variable expenses. Variable expenses include your personal choices like eating out, petrol/diesel bills, mobile data bills, entertainment, shopping, groceries etc. You should keep a track of these bills as you will be able to figure out which are the expenses can be minimized or avoided eg if you are eating out on a regular basis it will surely hit your monthly budget and you can decide to prefer homemade food which is not only more nutritious than the outside food but also saves a lot of money.

I am sure now when you have understood the answer to the first question you must be waiting for the answer to 2nd question: A number of people think they have missed the train and they didn’t invest when the markets were low or when interest rates were high. But the right answer of this question is every time is the right time to invest and depending upon the time horizon and your risk appetite you may chose from the wide variety of the investment instruments and invest. Don’t miss the train now. This is the right time to invest. Don’t delay it further.

You can simply write to us or speak to our financial fitness expert or even schedule a call to understand your investment plan.

5 must have Investments in 2016-17

You sure are done with the taxation & returns for last year and most of you must have started executing your financial goals as planned for the year ahead. For all those, who are done with the annual financial plans and also those who are still wondering on where to invest and how to go about breaking your investment amount for the year ahead, here is a detailed explanation on the must have investments for the ongoing financial year.

Whether you are a working class corporate goer, a business person or managing a startup – these investments will surely help you plan better for the financial goals.

Public Provident Fund: The PPF scheme was launched to encourage savings across various income classes by Ministry of Finance in the year 1968. PPF is a long term debt instrument scheme which offers safety with attractive rate of interest. PPF falls under Exempt, Exempt, Exempt (EEE) and is one of the best tax saving instruments. The first E implies an exemption on the amount invested in the PPF, the second E implies an exemption on the interest on PPF and the third ‘E’ implies exemption on the total income earned from PPF. Following are key features of PPF scheme:

  • Individuals in their own names as well as on behalf of the minors can open a PPF account in any of the banks. The HUF is not allowed to open a PPF account.
  • Interest rates on PPF scheme are announced by Govt. of India annually. Interest earned is compounded annually. For current financial year of 2016-17 the interest rate is 8.1%
  • Tenure of PPF scheme is 15 years and one can chose to continue in multiples of 5 years, with or without making additional investments to the PPF account.
  • One can invest minimum Rs. 500/- to maximum Rs. 1,50,000/- in one financial year. The amount can be deposited in lump sum or in a maximum of 12 installments in a financial year.
  • Loans and withdrawals are permitted depending upon the tenure of the account. The loans can be availed from 3 rd financial year and the interest on the loan amount is charged at 2% per annum above the PPF interest rate. Partial withdrawal can be made every year after 7 th financial year but the complete withdrawal is possible at the maturity.

Equity Linked Saving Scheme: The ELSS is a diversified equity mutual fund which invests 65% in equity related instrument with a lock in period of 3 years hence it qualifies for tax exemption under section 80C of the income tax act. ELSS funds are one of the best avenues to save tax as along with tax deduction, though not assured, the investor gets potentially higher returns. Following are key features of ELSS schemes:

  • ELSS has the shortest lock in period of 3 years in comparison to other tax saving schemes.
  • One can invest a minimum of Rs. 500/- in ELSS and there’s no upper limit on investment though maximum Rs. 1,50,000/- per annum are eligible for deduction under section 80C. One can invest in lump sum or in installments using systematic installment plan.
  • Since these funds invest 65% in equity, there’s some element of risk with potentially high returns. Moderate to high risk investors can consider this option . The past performance is not a guarantee of the future.

Health Insurance: The medical costs are rising year on year and it’s not a secret that the inflation in medical care is much higher than the inflation in food and other articles. The inflation in medical care is in double digits and no decline in sight for years to come. Hence insurance companies has launched special insurance plans known as Health Insurance which covers the cost of an insured individual’s medical and surgical expenses. Depending upon the type of insurance coverage, either the insured pays costs out of his pocket at the time of medical care which is reimbursed later or the insurer makes payment to the hospital/medical care provider. One can claim tax benefits under section 80D for the health insurance premium paid for self and can claim tax benefits under Section 80DD for the health insurance premium paid for the health insurance of dependent/ disabled person. Following are advantages of Health Insurance Policy:

  • Peace of mind
  • Flexibility of choosing health insurance cover
  • Cashless treatments available in the hospital. No need to carry cash.
  • Tax benefits up to Rs. 30,000/- under Section 80D and Section 80DD
  • Health Insurance available up to old age

Term Insurance: Term insurance policies are increasingly used as a financial planning and risk management tools these days as these are pure protection plans and most basic form of life insurance plans. These plans ensure your family’s financial independence in your absence. These plans offer high insurance cover with relatively low premium as there is no maturity benefit available (Don’t be disappointed at the end of the policy term, you are alive after all). The purpose of this insurance policy is to hold you until you can become self –insured by your assets. One can buy term insurance for a period of 5, 10, 15, 20, 25 years or till the age of 70 years. Also if you take a home loan from a bank then you must buy term insurance of the corresponding value. In case of your demise your family will not lose the home as the insurance company will repay the outstanding loan amount.

National Pension System: Pension Plans provide financial security and financial freedom in your old age without compromising on your standards of living. NPS was launched on 1 st January 2004 by Govt. of India with the objective of providing retirement income to all the citizens. Initially it was introduced for new Govt. employees but from 1 st May’09, the NPS has been extended to all the citizens (age from 18 to 60) of India including NRI’s. It’s a voluntary, defined contribution retirement saving scheme and the saving of the individuals are pooled in a pension fund and these funds are invested by Pension Fund Regulatory and Development Authority (PFRDA) regulated professional fund managers. To avail good pension you should start investing in NPS at an early age so that the power of compounding can make your corpus big and help you with decent pension.

We are sure, the concrete description above helped you in understanding about the financial instruments. To understand the utility or to subscribe to one of these, feel free to write to us on contact@sbsfin.com or you can also speak to our financial fitness expert.

Monthly Investment Plans, to prioritize savings

Men and women are given equal rights to work and earn livelihood to sustain. But earning money is not the sole thing. Saving money is an important aspect in life and Monthly Investment Plans is the easiest way to begin. One must realize this fact at an early stage in life. When you are in early forties, until that age group when every individual is fit and energetic enough to work hard and earn as much as they can possibly. But at the same time they in this age group are found to be spending extravagantly on shopping, partying etc. Saving money is important. Why? For a very simple reason, saving money makes us financially secure. It acts as a safety net.

From the day you start earning, you must incorporate the habit of saving. Saving money serves many benefits. And like a monthly salary, a monthly pocket money, a monthly expense sheet – a Monthly Investment Plan in place holds great significance.

Benefits of Saving through Monthly Investment Plans:

  • The first and foremost important point is that it will help you become financially independent.
  • You may retire from your services someday either by servicing fully or partially. So you need to prepare beforehand to plan your life after your retirement.
  • Unexpected circumstances may arise anytime. Since these are beyond human control, these can’t be predicted. Though no one likes the idea of financial emergency yet one needs to be prepared for such circumstances.
  • You start feeling boredom due to same repetitive schedule and work. So recreation and fun becomes another reason to save money.
  • Saving money will help you support good and proper education of your child.
  • Saving money now can help you in case of health problems in future.
  • It can also cover the unplanned expenses like house renovation, car purchase etc.
  • It may happen that you may lose job for any reason such as recession, unhealthy work environment or relations with people at work place. Thus, if you have already saved some money it will support you for these days.
  • With the money you have saved, you can invest it and run your own business also.

You must check your spending pattern through your bills and accordingly decide as to what amount of your income you must save. Though you may not be able to save a large chunk of your income at the beginning, start with small amount but make sure that you save regularly. It is also important that you prioritize your savings. It is highly recommendable that you should first save for emergencies and retirements and then for other purposes and education.

At SBS Fin, our financial fitness expert, Rashi insists on starting early and she says Investment should be inculcated as a habit. The best way to begin is to start a SIP – Systematic Investment Plan. The benefit of starting SIP is you can start small and still make it big.

She encourages youngsters to start early even if it is Rs.1000/- a month. The simple rules of Systematic Investment Plan are like this:

Calculate your Savings

Step 1: Start with as low as Rs.5000 per month and invest the lump-sum which could be your bonus or appraisal or festival bonus in recurring deposits or liquid funds. SBS Fin recommends a debt fund as there is no TDS attached. Also Rashi insists on creating a buffer in the beginning so that investments can be stress free and are inculcated as a habit.

Step 2: She insists on an increase in savings every year by 10%. So if you have started with Rs.5000, you must take it to Rs. 5,500 per month. The increase shall again be invested in liquid funds.

The basic calculation here is this, if you keep on increasing the investment every year by 10%, in a span of 8 years your monthly SIP would be @Rs. 9,800/- which means you have totally saved an amount of Rs.1,17,600 and have also made investments in Debt & Equity which yes are certainly market related but still stand between 8-10 lakhs.

Start Saving now

The idea here is not to make you richer by 8-10 lakhs in 8 years but to help you understand the convenience of saving small and saving early. From your first salary onwards you must target to shell out an investment of Rs.5000/- in SIP and learn to grow your money systematically.

At SBS Fin, we intend to hand-hold the youngsters in their portfolio building, the idea is to guide them to their financial freedom by empowering them with financial fitness.

Don’t get frustrated or over worked if you are not able to meet your savings & investment goals. What is important is to get started, save regularly and constantly and make investments a habit. A habit to your self, a habit to financially fit you.

How to Buy Term Insurance

Term insurance is a relatively new concept in life insurance. It was introduced to the Indian market as late as 2003 when the sector was opened up to private players. The concept, however, had been in existence in the US for many years. In fact over two to three decades ago there was a movement in the US where the concept of “Buy term, invest the rest” was promulgated. Here is a primer on term insurance relevant to all of us.

What is term insurance?

Term insurance provides coverage for a specific time period. The death benefit is paid only if a person dies during the policy tenure. In that sense these are pure risk covers. Coverage terms and conditions are standardized across insurers. The only exclusion allowed is suicide in the first year of the insurance. You can compare the cost of term plan across insurers and choose the insurer with low costs, provided their claim settlement is over 85%. These settlement ratios are published in the insurer’s public disclosures and the Insurance Regulatory and Development Authority’s annual report.

What are the main things to check when selecting a term insurance policy?

The three most important factors to consider in a term insurance policy are the sum assured paid on death, the premium and the claims settlement ratio.

The quantum of death benefit payable can be increasing, decreasing, or flat over the term of the plan. I prefer the flat sum assured. As a rule of thumb I recommend buying insurance that is 10 times your current annual income. This will ensure that if you die your family will have financial security for several years. If, in the future, you need to increase your insurance you can always buy an additional term cover. Since product benefits are standardized, premium becomes an important criterion. Pick the cheapest plan that meets the claims payment track record.

What are the important riders that can be bought with a basic term life plan?

Common riders available with a term life plan include: accidental death, permanent disability, and critical illness. Critical illness rider with a term plan is recommended. This helps avoid a separate pre-issuance medical check-up for a critical illness plan, and the premium is fixed for the term of the policy. The other two benefits—disability and accidental death—are better bought independently, in an individual accident insurance policy. Individual accident insurance policies have several advantages—no pre-issuance medical tests, fixed premium at any age, and lower rates than rider premiums charged by life insurers.

Are there term plans that come with money-back options?

There are term plans available with a return of premium option. These work as standard endowment plans. In such plans, if there is no claim till the end of the policy term, the entire premium paid is refunded. However, these plans are expensive and do not justify value for money. The effective return in these plans is low, and if the incremental cost of such a plan is deposited in a bank fixed deposit or mutual fund, your return is likely to be higher.

A standard term plan is better than return of premium plans.

How to purchase term insurance-offline or online?

With most insurers there is no price difference whether you buy the product online or offline. If you are certain about the insurance, you want and comfortable handling the paperwork yourself then buy it online. Otherwise work with our financial fitness expert to help you through the main questions – How much sum assured? Which are the lowest premiums? And what are the claim settlement ratios of different term insurances? A good advisor will also step in if a claim needs to be paid. She can help with the paperwork and follow-up with the insurer.

In summary, term insurance is by far the most key life insurance for your portfolio. The sooner you buy this the better.

Author Bio: Mr.Kapil Mehta has over 20 years of experience in insurance, consumer goods, consulting and M&A in India. He is the Co-Founder of SecureNow Insurance Broker Pvt. Ltd, an award-winning insurance broking firm, set-up in 2011. SecureNow was a top three Asian Insurance Broker of 2015, awarded by the Asian Insurance Review.

Kapil is a top 10 writer in the world on Quora for insurance matters. He writes regularly on insurance in the Mint, specifically on matters that effect individual insurances like life and health. Connect with Kapil here.

Investment advice for Working Women

The moment I was asked to write on investment advice for working women, I went back to my initial days of earning back in the year 2006 when I joined my job and started saving and not investing. Let me confess, at that time, I was clueless on the topic of investment and not even aware on how to invest. Forget about knowing the exemplary and enormous options available in the market for investment. And all this amidst the confusing discussions of my friends about Investment advice and portfolio management. Nevertheless, I did thought about it and here is my Investment advice for working women.

Understand Investing

Investing is placing your money into any investment products which give you higher return than saving. Keeping your money in saving account will not fetch you more than 5-6%, in case the balance is more than 1 lakh.

Importance of Investing

According to me, being working women itself is an achievement. In this era of globalization, we have to go one step further competing with men and have the financial thoughts better than them.

Building wealth depends on investing at the right time in right options and not on saving. There is no point in just saving. If you want to make it big, save for investment and then invest wisely. I quite liked the fact that SBS Financial Advisory is especially active in providing financial education to working women and hand holding them on the path of financial freedom.

Working women should start building the wealth by investing from the day of earning. I strongly feel that working women should make themselves financially educated; and then they shall further pass on this habit to her children as well. Married working women can compliment her partner by investing as per the financial goals set by both the partners. Working women generally does not carry responsibility of contributing their income to family liability, that could be an individual choice but even then investment is always recommended over savings.

For single woman the investment plan has major role to play in life. For them the saving in the form of emergency fund would take preference than investment.

Being a banker for over a decade now, I could further bifurcate my advice on investments as below:

Investment options (categorized accordingly for the purpose of Tax Saving)

Tax saving investments

Non Tax saving Investment

  • Mutual Fund (Lump sum or SIPs)
  • Shares
  • Securities
  • Recurring deposit
  • Normal Fixed Deposit
  • Fixed Maturity Plans
  • ETFs Electronic Transfer Funds
  • KVP Kishan Vikas Patra

The options should be chosen based on your duration of your goals, risk taking capacity, expected returns etc. Also, retirement planning shall be done well in advance and that should essentially be included in long term investments like NPS. We usually take this up under Goal Based Planning whether it is a Tax saving investment or Non- tax saving investment.

However, I would say that following financial products cannot be considered as investments. But I truly feel I would recommend these in my investment advice for working women.

Life Insurance Plans (Traditional and ULIPs)

Please remember insurance plans might eat your money and might not turn out good option for getting return. Your insurance is only required when you have some loans / liabilities to pay on your name. Keep insurance separate from investment.

First home

First property can-not be considered as investment since it might fall in basic need. Second home can be considered as Investment.

I have been investing since last 5 years and would acknowledge the following as few factors which affect investments:

Inflation: Inflation should also be taken care off while investing. The amount of return should be minimum 10% per annum to balance the inflation and also get the return.

Market Risks & Returns: Depends on how market is behaving but the long term investors shall not worry about this.

Duration of Goals

  • If you are looking for fulfilling long term goals (more than 10 years) you may please go ahead with putting your money in Mutual fund, shares. Research has shown that women are more risk-averse when it comes to trading,
  • The investment options available for Mid term goals (5- 10 years) are
  • However short term goals can be achieved with making an investment in Fixed deposit, recurring deposit, bonds etc.

If I have to brief in 5 points, the way to build wealth, I would say:

  1. Monitor your expenditure: The investment for any woman starts with saving, saving and saving. The reason behind this is save first and then spend. Researchers says that woman are better in saving money.
  2. Regular monitor your investments: Don’t forget after putting your money in any of the investment.
  3. Keep emergency fund aside: I always recommend that we should keep a buffer aside for running expenses for at least 3 months.
  4. Keep your debt little: Loans or credit cards should be kept minimal.
  5. Discipline: Don’t be lenient with investments, make it a habit.

Also please note that, this is only general information/advice written from self experience and collected from my own experience & application. I got real new insights after my first session with Rashi @ SBS Fin and I feel more confident & informed as an investor now.

The author is serving at a leading Bank for over a decade. And this is what she had to share when we asked for an Investment advice for working women in India.