07 Jan

Investment Ideas- Jan 2020

Greeting of the New Year 2020!

Predicting movements in interest rates, foreign currency, government policies, personal taxation rates, inflation and financial markets is a foolish exercise as these are not in one’s control. Hence, controlling the controllable would be very critical in achieving one’s financial goals. The following points which are in one’s control could be followed in managing one’s Personal Finances in the year to come and in the future:

1. Live within your means and spend after you save.

2. Invest in self (be it in a training programme, certification course, etc, so as to keep updated) because that will pay the highest financial returns, in this ever changing world.

3. Buy adequate insurance to cover all risks which would affect yours and family’s finances.

4. Invest your savings in well regulated, tax efficient products.

5. Have an Asset Allocation Policy i.e split your assets between different assets classes based on your risk profile, time horizon and financial requirements. The portfolio should be allocated between aggressive, conservative and liquid assets.

6. Aggressive assets will help build wealth with larger volatility and non- linear returns. Conservative assets would give stability/ regular income and liquid assets could be used in case of emergencies.

7. Within an asset class, diversify across styles to reduce the risk of concentration and style bias.

8. Invest in volatile assets like equity in a gradual manner so as to reduce the risk of market timing.

9. Do not compare returns between asset classes as it would be like comparing apples and oranges.

10. Focus on low cost products and options wherever available. But do not associate low cost with high returns.

11. Do not let greed, emotions and personal biases drive your financial investment decisions.

11. Rebalance your portfolio based on asset allocation policies at least once a year based on your financial condition, risk profile and tax situation. Let not the immediate past performance dictate the financial allocation.

12. Manage market risk. However, avoid fraudulent transactions.

13. In case this sounds too complicated, engage with a Financial Planner who is registered under a regulated body, and where there is no conflict of interest.

14. There is nothing called free lunch in financial markets and financial advise. In case, one wants to manage their own personal finances, then one needs to invest their time and resources which will eat into their professional and family time. On the other hand, partnering with a Financial Planner helps one to focus on their other passions in life.

Over long periods of time, financial product selection and market timing would not be the critical factor in your overall portfolio return. On the contrary, a strategy focused on process, discipline, financial goals, time horizon, patience, asset allocation and diversification could be the key factors to earn better risk adjusted returns.

We wish the year 2020 and beyond, will help you to build your wealth in the most appropriate way so as to reap the benefits of safety, liquidity, tax efficiency and returns.

Note:

1. Market linked investments like Stocks, mutual funds are subject to market risks. Read scheme related documents carefully before investing.

2. Past performance of any asset class is not an indicator of future performance.

3. Do visit www.naveenrego.com for the disclosure statement.

4. Assumptions on growth rates are purely indicative.

Naveen Julian Rego-CFPCM

SEBI Registered Investment Adviser

INA200004250

03rd January, 2020

07 Aug

Investment Ideas- August 2019

1. Equity markets are going through severe market volatility and within that, especially mid and small sized companies had a very large fall. This would have affected all the investors who would have invested in the last 1-2 years and also older investors in their incremental portfolios.
2. Clients whose equity allocations have still not reached their target allocations based on their risk profile or those who are funding their long term goals should continue to invest in equity instruments in spite of the short term volatility. Regular investing (in a portfolio of equity stocks or equity mutual funds) would be a good way to benefit from such opportunities. It would be injurious to one’s financial wealth if one does something contrary to this.
3. It would be important for investors to focus on things which are controllable than those which are not in their control. Hence, a focus on Asset Allocation, diversification, regular investing, tax efficient investments, discipline and patience would be very important.
4. Investors could also look at low cost products like ETFs, Index funds, Direct funds and Direct Equity, to reduce the overall cost of the portfolio.
5. Have a fixed income allocation to give stability, liquidity and stable returns to your overall portfolio. This would come very handy during volatile times like these. Debt mutual funds would be an ideal option considering their tax efficiency not withstanding their volatility in the last 1 year.
6. Interest rates would move down gradually and it would be good for investors (including NRIs) to lock-in long term interest rates in their Fixed Deposits.
7. Be tax compliant and file your returns on time. This would help one to carry forward any losses.
8. Investors could also have diversification in International stocks through International Equity Mutual funds.
9. Investors with short term horizon could invest in liquid funds (up to 3 months), Ultra Short Term Funds (up to 3-6 months) and in Arbitrage funds (between 6 months to 1 year) to get better returns compared to the banking products.
10. Avoid complicated products especially tradition insurance plans, Unit linked insurance plans and structured products. This would be more costly and non transparent.
11. Over long periods of time, financial product selection and market timing would not be the critical factor in your overall portfolio return. On the contrary, a strategy focused on process, discipline, financial goals, time horizon, patience, asset allocation and diversification could be the key factors to earn better risk adjusted returns. Do not confuse luck with skill.
12. Always have an emergency and protection portfolio. This would comprise of emergency fund (to take care of mandatory expenses of 6 to 12 months), medical insurance, disability insurance and term insurance. Kindly note emergencies do not come with any prior intimation but will have a large affect on your entire personal finances.
13. Talk to your Financial Planner (who is experienced, qualified and registered), in case of any doubt. Financial Planners will not assure you any returns but, give you clarity on your Long Term financial journey.

Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a Professional Planner/Investment Adviser while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.

In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
INA200004250

01st August, 2019

07 Aug

Debt Mutual Funds – an excellent alternative to Banking products

There is a common misconception about mutual funds. Many believe that they invest in only equity related asset class and are very risky. However, this is very far from truth. Each Mutual Fund scheme invests as per the mandate of the fund. The mandate of each scheme differs. It could be investing in equities of large or small companies, or in gold or investing in fixed income instruments like bonds or debentures. The riskiness of each type of scheme depends on the mandate of the scheme.
Most of us (Resident & NRI’s) invest in Bank Fixed Deposits or Savings Account. The ease and convenience of investing makes them very attractive. However, please note the money taken by banks are then onward invested into instruments like government securities, corporate bonds, loans etc. The bank after keeping their margins passes on the returns to the depositors. The returns to the depositors would then be subjected to TDS or income taxes.
Similarly, debt mutual funds also invest in debt instruments of corporate and government. Typically their cost of operation is much lower than banks and as such investors in debt mutual fund can potentially get higher returns than similar maturity deposits. Also, the returns from a debt mutual funds are tax efficient as gains after 3 years (long term gains) are taxed at concessional tax rates ( net of inflation) whereas bank deposits ( Resident and NRO) are taxed at marginal tax rates. It could also be noted that only realized gains are taxable in debt mutual funds whereas even non realized gains (Resident /NRO) are taxed in case of banking products.
The following type of schemes is suggested for each category of investors (residents & NRI’s)
1. Overnight/ Liquid Mutual Funds: for investment horizon between 1 day to 3 months. Excellent alternative to savings and current account to deploy short term surplus. The returns typically would be the short term money market rates.
2. Ultra Short term Mutual Funds: for investment horizon of between 3-6 months. Excellent alternative to short term deposits of between 3-6 months. The returns typically would be the money market rates of 3-6 months.
3. Short Term Mutual Funds: for investment horizon between 6-36 months. Excellent alternative to deposits of 6-36 months. The returns typically would be the money market/ short term debt market rates of 6-36 months.
4. Medium Term/ Long Term Debt Mutual Funds: for investment horizon of more than 3 years. These would be an excellent alternative to 3 year plus FDs (Resident and NRO) as the taxation would be very low as the taxation is post inflation. The returns typically would be the long term debt market rates.

Some of the other salient features are:

• NRIs can invest on a fully repatriable basis from NRE account.
• NRIs can also invest the balances of NRO accounts on non-repatriable basis.
• One can invest anytime including additional purchases. Full and partial exits could be done at any time.
• The transactions could be done either online or offline.
• No TDS for residents on the withdrawals. No tax implication on growth.
• No entry loads. Exit loads depend on the type of the schemes.
• Much safer than equity scheme in the short term. Returns do not depend on the equity markets.
• Fully regulated by SEBI under the Ministry of Finance.
• Returning NRI’s can plan to invest quite early to reduce the taxable income once the Residency changes and Indian tax laws apply.
Illustration: If one has an average balance of Rs 1 lakh in his/her savings account for a year, the savings account at 3.50% p.a. would yield Rs. 3,500. The same money invested in a liquid mutual fund (at around 7% p.a. (not assured)) would yield approximately Rs. 7,000 which is double the savings account rate.

Note:
1. Mutual Fund Investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. It is very important to consult a professional planner while implementing any of the above ideas.
3. The above are mere suggestions and not Investment Advise as individual cases might differ

In case, some of the above ideas appeal to you and you would like professional guidance, then feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Do visit us at www.naveenrego.com to read the disclosure statement and our past Investment Ideas in the blog section.

Happy Investing!!

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
INA200004250

10th July, 2019

07 Aug

Value Additions by Our fee based Financial Planning Practice

The professional financial planning and advisory fees charged by us are visible and possibly pinch many clients. However, the fees should be seen in the context of the following value additions done by us while engaging our financial planning services:

  1. Tax Efficiency: Financial advice given by us will make the financial portfolio tax efficient in relation to what it was before thereby, reducing the overall taxes in the years to come.

  2. Lower costs: Financial product costs which are not generally visible can eat into the overall returns. We would help in selecting low cost variants of similar products which would considerably save on costs, thereby benefiting the clients in increasing returns.

  3. Wealth Protection: We give a lot of emphasis to contingency funds and protection of our clients’ wealth through proper selection of insurance plans. Building up a contingency fund and low cost insurance portfolios are a very important priority in our practise.

  4. Process-based Approach: We have a process based approach where we fix an overall asset allocation strategy taking into consideration the risk profile, time horizon and financial goals of the client. This would not make the client too aggressive or conservative and thereby get better risk-adjusted returns.

  5. Diversification: A well diversified strategy within an asset class will mitigate the risk of product/ style concentration. We always have a diversified strategy within an asset class so as to avoid negative surprises.

  6. Product Selection: We would assist in selecting superior products within an asset class thereby increasing Returns and not Risks.

  7. Investment Strategy: Investment in certain financial products need to be done on a gradual basis and /or based on opportunities. Exits also need to be done based on certain factors. We would have an overall strategy for the same rather than having an adhoc approach.

  8. Transparency: As our only earning in the Financial Planning engagement is fees and not commissions, we will be on the same side as the client. Unnecessary product suggestion or portfolio churning would not be the motive while constructing and reviewing the Financial Plan.

  9. Financial Path: We will build an overall path for the client’s financial journey so that the client is able to reach his financial goals with minimum hurdles.

  10. Counselling: We will counsel the client on a lot of issues which may not be of financial nature but may have a financial bearing on the client’s personal finances.

  11. Saying NO: Many a times we would say NO to certain financial products/ strategies keeping in mind the overall benefit of the client. This would save the client on unnecessary costs and regrets.

  12. Regulations: We are registered with SEBI as an Investment Adviser (with registration No. INA200004250) which makes us more accountable for your personal finances.

The above value additions are not easily measurable but the fees to be paid to us, are. It would hence be wise to check the overall benefits before accepting/rejecting our fee based proposition. Our fees are also on the overall financial wealth (rather than only one asset class or product) so that, we get a better overview on your overall finances to give the best advice. One might be a good driver and follow good traffic discipline. However, it still pays to renew one’s motor vehicle Insurance, just in case some other vehicle hits yours!! Partnering with us would help you to protect your financial wealth.

We are passionate about our profession and look forward to engage and continue our association in the years to come. Feel free to get in touch with us for any further clarifications on the same.

Naveen Julian Rego-CFPCM

SEBI Registered Investment Adviser

INA200004250

23rd July, 2019

07 Aug

Investment Ideas- May 2019

1. Equity markets in India and Globally have been touching new highs. As a cautious approach we would advise our clients to have a maximum equity allocation of 50% in their long term portfolios. This would reduce the downside risk in case of severe market corrections.
2. Money should not be invested in equity portfolio with investment horizon lower than 5 years as Fixed Income allocations could give better risk-adjusted returns.
3. Clients building up equity portfolio as part of their Target Allocation through regular SIP route could continue the same. Regular investment reduces the risk of market timing.
4. Election results in India will have a very large bearing on the short term performance of equity market. This would however be insignificant over a long period of time. Any large volatility during the election results, should be used by investors as a good buying opportunity from a long term perspective.
5. Fixed Income debt funds in India are going through severe volatility because of multiple risks. However, the case for investing in the same remains as strong as ever. It would be important to have a well diversified fixed income portfolio to get better risk-adjusted returns.
6. Medium Debt Mutual Funds should be invested in 3 years plus horizon as they give better tax efficient returns comparable to bank FD’s (not withstanding last one year’s volatility).
7. It would be a good time to exit non-core portfolios as the current markets will give better exit pricing.
8. While investing in the stock portfolio, it is very important to focus on 10-15 large cap companies. Similarly, Investors in Equity Mutual Funds can pick up 4-5 multi cap funds and build this portfolio. It should be noted Equity portfolios (Stocks or Equity Mutual Funds) should be invested with a minimum investment term of 5 years and more. Invest gradually to benefit from market volatility and reduce the risk of market timing.
9. Investors could also have diversification in International stocks through International Equity Mutual funds.
10. Continue investing in tax efficient products life PPF, NRI FD’s (only for NRI’s), and Medium Debt Mutual Funds etc.
11. Investors with short term horizon could invest in liquid funds (up to 3 months), Ultra Short Term Funds (up to 3-6 months) and in Arbitrage funds (between 6 months to 1 year) to get better returns compared to the banking products.
12. Avoid complicated products especially tradition insurance plans, Unit linked insurance plans and structured products. This would be more costly and non transparent.
13. Over long periods of time, financial product selection and market timing would not be the critical factor in your overall portfolio return. On the contrary, a strategy focused on process, discipline, financial goals, time horizon, patience, asset allocation and diversification could be the key factors to earn better risk adjusted returns. Do not confuse luck with skill.
14. Always have an emergency and protection portfolio. This would comprise of emergency fund (to take care of mandatory expenses of 6 to 12 months), medical insurance, disability insurance and term insurance. Kindly note emergencies do not come with any prior intimation but will have a large affect on your entire personal finances.
15. Talk to your Financial Adviser (who is experienced, qualified and registered), in case of any doubt. Financial Advisers will not assure you any returns but, give you clarity on your Long Term financial journey.

Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a Professional Planner/Investment Adviser while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.

In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
INA200004250

10th May, 2019

07 Aug

Mutual Fund Pointers for NRIs

1. Short Term Gains (before completion of 1 year from the date of investing) on equity mutual funds are taxed @ 15% with an equivalent TDS @ 15% + cess.

2. Long term Gains (after completion of 1 year from the date of investing) on equity mutual funds are taxed @ 10% with an equivalent TDS @ 10% + cess, after the total gains for the financial year cross Rs. 1 lakh.

3. TDS in both cases above can be claimed back by the investor by filing IT returns before the due date (31st July), each year.

4. Short Term Gains (before completion of 3 years from the date of investing) on non-equity mutual funds are added to the Indian Income of the investor and taxed at marginal tax rates. There would also be a TDS implication of 30%.

5. Long Term Gains (after completion of 3 years from the date of investing) on non-equity mutual funds are taxed @ 20%. There would be TDS @ 20% implication on the same.

6. Benefits of Sec 80C are not considered while computing Long Term/ Short Term capital gains.

7. Basic exception limits are not applicable for NRIs for the gains of Equity oriented funds. Basic exception limits, for short term gains of non-equity oriented funds are applicable for NRIs but, Long term gains of non-equity are not applicable.

8. The new revised basic exemption limit of Rs. 5 lakhs (net income), are not applicable for NRIs.

9. NRIs could invest in equity linked savings schemes to reduce taxable income (excluding capital gains income) under Sec 80C.

10. Dividend Income if any, received from equity or non-equity mutual funds are exempted in the hands of the investor. However, there would be implications of Dividend Distribution Tax.

11. Losses if any made on equity or non-equity funds could be used for adjusting future capital gains subject to IT Return filing done before the last filing date (31st July) of each financial year.

Note:
Equity mutual funds are those tht invest at least 60% in India Equity or India Equity ETFs. The funds which do not satisfy this criteria are known as non-equity funds.

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
Reg. No. INA200004250

29th April, 2019

07 Aug

Investment Ideas- November, 2018

1. Equity & Debt markets in India are going through a very volatile phase which would have affected these two major asset class portfolios negatively. This could be visible in your Stock, Equity Mutual Fund and Medium/Long Term Debt Mutual Fund portfolio.
2. As always, risk management plays a very large role in managing these risks apart from benefiting from such opportunities. Do remember volatility is a friend of long term investor and enemy of short term investors.
3. Long term returns of Equities over longer periods of time (10 years and above) are a slave of earnings. However, the short term performances are more of function of market sentiments, liquidity and other short term factors. Hence, Equity linked investments should be used to fund financial goals which are ideally greater than 5-10 years.
4. Investors should have a target allocation of Equity and Debt (Fixed Income) in their overall wealth portfolio. The target allocation should be based on one’s risk bearing capacity, time horizon and income requirements.
5. While investing in the stock portfolio it is very important to focus on 10-15 large cap companies. Similarly, Investors in Equity Mutual Funds can pick up 4-5 multi cap funds and build this portfolio. It should be noted Equity portfolios (Stocks or Equity Mutual Funds) should be invested with a minimum investment term of 5 Years and more. Invest gradually to benefit from market volatility and reduce the risk of market timing.
6. Investors could also have diversification in International stocks through International Equity Mutual funds.
7. Severe correction in Small Cap Companies gives an ideal opportunity for investors to build small cap portfolio in funding their Long Term goals. This however should be with a 10 years plus time frame. Maximum allocation of 20% of Equity Linked investments would be ideal.
8. Continue investing in tax efficient products life PPF, NRI FD’s (only for NRI’s), and Medium Debt Mutual Funds etc.
9. Medium Debt Mutual Funds should be invested in 3 years plus horizon as they give better tax efficient returns comparable to bank FD’s (not withstanding last one year’s volatility).
10. Investors with short term horizon could invest in liquid funds (up to 3 months), Ultra Short Term Funds (up to 6 months) and in Arbitrage funds (between 6 months to 1 year) to get better returns compared to the banking products.
11. Avoid complicated products especially tradition insurance plans, Unit linked insurance plans and structure products. This would be more costly and non transparent.
12. Over long periods of time, financial product selection and market timing would not be the critical factor in your overall portfolio return. On the contrary, a strategy focused on process, discipline, financial goals, time horizon, patience, asset allocation and diversification could be the key factors to earn better risk adjusted returns. Do not confuse luck with skill.
13. Always have an emergency and protection portfolio. This would comprise of emergency fund (to take care of mandatory expenses of 6 to 12 months), medical insurance, disability insurance and term insurance. Kindly note emergencies do not come with any prior intimation but will have a large affect on your entire personal finances.
14. Talk to your Financial Adviser (who is experienced, qualified and registered), in case of any doubt. Financial advisers will not assure you any returns but give you clarity on your Long Term financial journey.

Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a Professional Planner/Investment Advisor while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.

In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
INA200004250

01st November 2018

07 Aug

Our Philosophy for Equity Investments

Equity investments potentially give very large returns over the long term but entail high volatility in the shorter term. Our philosophy on equity investments would be guided by the following thoughts:

1. Clients having allocation less than Rs. 25 lakhs for equity investments would be better off investing in equity mutual funds. These are recommended for their tax efficiency, professional management, ease of execution and flexibility.
2. Equity Portfolio Management Scheme (PMS) would be recommended to clients where the allocation to equity portfolio is greater than Rs. 1 crore. This is because the minimum investment size for equity PMS is Rs. 25 lakhs. However do note, PMS have much larger cost structure compared to direct equity, ETF’s and Equity mutual funds.
3. The entire equity portfolio comprising of Equity PMS, Direct equity, Equity mutual fund including the existing allocation of the client will follow diversification so as to not get exposed to single sector, company or geography.
4. The driving theme while constructing the equity portfolio would be such that a larger allocation would be given to Multicap Portfolio and Value/ Contra Strategy. A smaller portion would be allocated to Global equities and Midcap/Smallcap Portfolio.
5. Investments in equity mutual funds and direct equity need to follow the principles of time diversification. This means the portfolio needs to be built gradually over a period of time, to reduce the risk of market timing.
6. We believe that for investors who are focused on equity mutual funds, allocation to five equity mutual funds with different investment styles would be sufficient to capture growth of equities. This would not only give focus to the portfolio but also give adequate diversification.
7. Passive funds like Exchange traded funds (ETF’s) or Index funds would be considered where the returns of active fund managers are much lower than such passive funds.
8. We would avoid thematic and sectoral funds as much as possible.
9. Allocation to direct equity should be done between 10-15 stocks. The allocations to individual stocks would be equal and the portfolio built gradually.
10. Lot of emphasis would be given to reduce the cost of equity portfolio thereby helping the client earn better returns. Towards this, we will focus on low cost ETF’s , Direct plans of equity mutual funds, low brokerage while executing direct equities and avoiding or reducing capital gains tax/ exit loads by holding the portfolio for longer term with minimum churn.
11. We believe Midcap and Smallcap equity mutual funds/ PMS can earn higher returns than we hunting for such portfolio. Hence, allocation to direct equity and ETF would be predominantly in Largecap stocks (Top 100 companies by market capitalization).
12. We would not recommend to take exposure in equities through Unit Linked Insurance Plans (ULIP’s) as there is a longer lock-in and higher cost.
13. We would not shy to increase equity allocation when the underlying news flow is bad and valuations are very attractive. Vice-versa is also true.
14. Our exit decisions on equity investments would be based on rebalancing strategies if, the equity allocation increases above the risk taking ability of the clients or financial goals approaching in the next 3-5 years. We might also exit if there are better avenues than the current portfolio. No exit would be dictated by short term underperformance.
15. Clients who can digest severe volatility in the shorter term, who have made adequate arrangements for their short term requirements, can wait for a minimum investment horizon of 5 years and above and following our equity investments principles would be best suited to benefit from the power of equity investing. We would not be giving trading and speculative calls.

Finally, Long term returns in equity are more of a result of patience, discipline and holding-power rather than the actual product itself.

Disclaimer:

1. Equity linked instruments are subject to market risks. There is no guarantee of returns.
2. Equity linked instruments are not suitable to investors with less than 5 years investment term.
3. Equity linked instruments undergo severe short term market volatility.
4. Past performance of equity linked instruments whether good or bad might not sustain in future. Please understand the scheme features carefully before investing.

Disclosure:

1. Naveen Julian Rego has a majority stake in Naveen Rego Wealth Managers Private Limited which is an execution only company distributing all Indian Mutual Fund schemes under the broker code ARN -23315. In lieu of the distributor agreement with the MF companies, the said company receives brokerage in the range of 0.05 to 1% (upfront or p.a.) depending on the scheme and the assets transacted.
We however, insist our clients to execute the transaction directly with the respective financial institutions, so as to reduce the implication of brokerages/ higher cost and non-transparency.

2. Naveen Julian Rego and his family members might be holding the recommended stocks and mutual funds in their personal portfolio.

Feel free to get in touch with us for more clarification at 9741157582/0824-4280101 or assistant@naveenrego.com

Have a wonderful day!!

Naveen Julian Rego-CFP
SEBI Registered Investment Advisor
Reg. No. INA200004250

Date: 14th August, 2018.

07 Aug

Investment Options for the Retired

Fixed Income products like Fixed Deposit’s and Postal Savings Schemes (Senior Citizen Bonds, Postal MIS etc) are the bedrock of many Retirees as they give stability and regular income. However, they suffer from lower returns (just around inflation) and taxation issues.
So what exactly should the investment mix of a RETIREE be? While there is no clear cut answer, as it should be investor specific, I have listed some guidelines which should be kept in mind for the above set of investors. I have omitted some complexities and hence made it simple.
1. Fixed Income instruments will give regular income but fail miserably in beating inflation. Hence, it would be very important to have inflation beating instruments in some proportions in one’s portfolio. Also, many of the fixed income instruments have the implication of taxation which reduces the post tax income.

2. The allocation (of inflation beating products) should be minimum 25% for retired investors. This could be increased based on the cash flow situation and the size of the portfolio. Equity Mutual funds, while being volatile in the shorter time frame, would be a good choice for these products. This would also reduce the taxable income. Build this part of portfolio gradually through a staggered approach so as reduce the market timing risk.

3. The allocation of fixed income products for a Retired person should be done such that one has enough regular income but the income is such that it falls below the taxable income. Assuming 8% p.a. annual interest, one can invest maximum Rs. 62.5 lakhs in taxable fixed income options like FD’s, Postal Schemes etc (non taxable income is Rs. 5.00 lakhs i.e. Rs. 3 lakhs basic exemption plus Rs 1.50 lakhs after investing under Sec 80C plus Rs 50,000 interest exempt). If one has other or rental income (fully taxable) of say Rs. 2 lakhs per year, then the maximum investments in FD like instruments would be Rs. 37.75 lakhs (approx). Also, note Rs. 40,000 p.a. pension income is also tax exempt.

4. The remaining allocation to fixed income options should be done through Debt Mutual Funds. There is common myth that debt mutual funds are very risky as they invest in shares. Kindly note that debt mutual funds invest (or loan) the money to government, banks, PSU’s or good corporate for a fixed period at a rate of interest. This is returned back to the investors after the expenses, subject to the associated risks which are considerably lower than equity instruments.

5. Debt Mutual Funds also have a better taxation structure than your other fixed income instruments. Firstly, they are not taxed till withdrawn. That means you can postpone taxation till the money is required. Secondly, exits after 3 years are taxed at 20% net of inflation unlike FD’s which are taxed fully.

6. Avoid taking dividend income from equity/debt and hybrid mutual funds as they are not tax efficient. Instead, one can opt for regular monthly withdrawal which is very tax efficient as exits are taxed at a lower rate than dividends. There would not be any TDS too.

7. One could avoid investing in real estate as the rental yields of apartments are quite low (not more than 3% p.a.) and fully taxed. These could be exited and re-invested in financial instruments as mentioned above.

8. NRI’s who are planning retirement in India should also bear in mind the above points so that, lower returns with large taxation do not hit them.
While the environment looks challenging for retired investors, a prudent approach would help in securing one’s regular income. It would be prudent to discuss your personal situation with a fee based Financial Planner and not have a piecemeal approach.

Note:
1. The above are personal opinion and should not be construed as financial/taxation advice.
2. As each individual circumstance is different, please contact your tax consultant/advisor for more clarity.
3. The cases and assumptions above are only for illustration and made for understanding purpose only.
4. Mutual Fund investments are subject to market risks. Kindly be aware of the risk factors before investing.
Feel free to get in touch with me at naveen@naveenrego.com / 98455 57582 for further clarifications.

Happy Retirement Planning!!

Naveen Julian Rego CFP
SEBI Registered Investment Adviser
Reg. No. INA200004250

28th June, 2018

07 Aug

Managing Retirement Surplus

Many elder people, who move away from active work either on attaining superannuation or optionally have to face many challenges in managing their retirement surplus. The foremost would be to have a monthly income to take care of regular expenses. I have compiled a list which I believe would be very handy for those who would be looking at creating a retirement income portfolio.

• The first step in managing the retirement surplus is to pay off any outstanding loans either on a car or a house. This would reduce the mental stress when you are retired.
• The next step is to appropriate amounts for any uncompleted major financial responsibilities like children’s higher education or children’s marriage. The financial products for this would be fixed deposits or debt mutual funds. Shares, real estate and equity mutual funds could be avoided. In case, gold needs to be accumulated for marriage purpose of children then it is advisable to go through the mutual fund route by investing monthly (SIP) either through an gold ETF or an open ended gold fund. The monthly purchases would reduce the risk of market timing for gold purchase.
• Next, would be to keep appropriate balances in a savings a/c or liquid fund to manage short term emergencies. Ideally 6 months of mandatory regular expenses (groceries, medical expenses, bills, travel, fuel etc) should be parked here.
• The continuation of an appropriate medical cover is very important at this stage. Choose a medical insurance company which would cover most of the medical expenses till maximum age. Do proper health declaration while filling the proposal form as non disclosure would render the contract void. However, have a proper diet and take good care of your health.
• After managing the above steps, take a re look at your entire financial net worth less your primary residence & gold ornaments with the above adjustments (mentioned in the above steps). This portfolio (after some restructuring) if properly deployed would give you the desired monthly income along with any other monthly pensions/income. This portfolio has to be invested judiciously taking the following
factors into consideration:
• Life Expectancy: Plan your finances well because of medical advancement one generally lives for between 75-85 years. This means your finances should last for another 15-25 years.
• Inflation: Regular monthly income what you receive now would not be sufficient at age 70 yrs because of inflation. Utilize inflation beating products like equity mutual funds in your financial portfolio.
• Taxation: Paying taxes is good, but avoid taxes through judicious deployment of one’s financial portfolio. Use debt mutual funds in addition to fixed deposits.
• Real estate and direct equity investments including IPO’s could be avoided as they would require more skill sets and large resources.
• Invest upto 50-75% financial portfolio in safe investments like Bank FDs, Postal MIS & Senior Citizen Bonds. The remaining could be invested between equity and debt mutual funds. Debt Mutual Funds are preferred over FD’s for their tax efficiencies. However, do not over diversify.
• Review your financial portfolio once every 6 months. Restructure, if required.
• Do not invest in high return earning speculative schemes. Get rich quickly schemes generally makes one poor quickly.
• Do not invest in Life Insurance (traditional or ULIPs) as they are costly and do not serve any purpose for your financial goals.
• In case the regular income is not sufficient from the capital deployed, then do not hesitate to draw into the capital. Do not live poor and die rich.
• Have your nomination across all your investments and have a proper registered will in place. Make a list of all your finances and share this with at least one close member in the family.
• Enjoy your money and let not money management give you more stress.
People who find the above steps confusing and complicated can associate with a good fee based financial planner/adviser who would guide you in each step as per one’s financial goals.

Happy Retirement!!

Naveen Julian Rego-CFPCM
SEBI Registered Investment Adviser
INA200004250

05th April, 2018