FINANCIAL PLANNING HAS BECOME MOST IMPORTANT-WHY?

Without planning nothing is possible in this world. And the effective planning is that only which has done on time (before the starting act). Financial planning is very necessary for every paid person to keep in mind the current situation. Everyone can earn money. But earning money cannot assure completion of your financial goals in present and future. Planning is a most important tool to manage the money in the most effective way that it may fulfill your all needs in all possible manners.

What does mean by Financial Planning: Everyone has some future goals which he/she would like to reach in a time period. Financial planning is the management of present’s resources in the direction of future financial goals.

For example: if I plan to purchase a home in 5 years I have to plan for that goal. I have to save money, invest that money to get good returns as I will effort for big lump sum to get a home. This planning is called financial planning.

Why it's necessary in this period: Yes this is very necessary and important in this time. In past it was not very necessary. But in this time if one doesn’t do it he/she will never be financially sound even good earning.

The future has never been seen by anyone but this is sure that we are going ahead in time. In every family there may be 2, 3, 4, 5 or more person. Among them it may be possible that all are earning or it is also possible that one is earning and rest all are depending on one. But financial planning  is that  process of management of present resources which assure you and your family to achieve what you want to have in future. One has to manage his income according to following formula:

INCOME = EXPENSES +SAVING

SAVING = SURPLUS FUND + INVESTMENT

Income should be divided into expenses according to budget and savings. Further savings should be divided into the surplus fund to meet unnecessary expenses and investment to achieve future goals.

Every earned person should make a monthly budget and should spend according to budget to ignore unnecessary expenses and keep a surplus fund aside to meet unexpected expenses. Along this one has to invest a part of his earning in short or long term investment vehicle to achieve his short term or long term goals which have to be according financial planning.

Rupee lost by 7 paisa against dollar: What makes this difference between the values of currencies (one strong and the other weak)

Rupee lost by 7 paisa against dollar

What makes this difference between the values of currencies:  one strong and the other weak

We start from very basic. Every country has their land, labor, capital, manufacturing, production, distribution, final goods and services. Now these all and they're working depends on various factors in which they grow, work, compete and survive. These factors are natural resources, working conditions, technical advancement, social conditions etc. These all factors and their processes involved in an economy. So we can say the economy is a process in which we invest our resources in minimizing way to achieve maximum fulfilling of needs and benefits.

Now we will talk about what indicate an economy. There are various factors of a community or a country which indicates the health of an economy. Some factors are following:

GDP (Gross domestic Product), Prices in the stock market, unemployment ratio, consumer leverage ratio, inflation ratio etc. So these are the some factor whose statics and calculation indicate about the health of an economy.

Now a country with strong economy will have currency of high value. And the country with weak economy will have currency with less value.

Strong Currency means higher the buying power (value) of that currency.

And weak currency means lesser the buying power (value) of that currency.

Up and down in the value of currencies are relative terms. Rupee lost by 7 paisa against dollar in this case we can say dollar strengthen 7 paisa against rupee or we can say rupee weakens 7 paisa against dollar.  The value of one currency is the relative value of another currency.

As we know that currency of an economy with strongest position in the world has to world’s reserve currency which we all need for trading. US (USD) is the strongest economy in the world that’s why we all valuate our currency value in comparison to the Dollar ($).

China (YUAN) is the world’s second strongest economy. But we found that china undervalued (less valuate something in comparison to its real value) its currency. There are some reasons behind it, one is that they want to maximization of export. If they undervalued their currency the market price of their products will be less and hence it is good for their GDP.

 Good Luck

Top 10 Investment Vehicle (FINANCE)

I am writing this post to keep in mind the people's need. Earning money is one thing, saving money is second thing but investing the money is a very wise thought because through investment we can save the money as well as we can earn the money. Now the question is that "where we should invest our money”. This depends on the following factors:

1) Amount one wants to invest
2) Tenure of your investment
3) Expected returns from investment
4) Risk bearing capability
5) Required degree of liquidity (Ability to convert into “CASH”)

For example:

(First case) If I have a big amount to invest assume I have 10,00,000 Rs to invest. I will definitely go for investment in real estate because in this era real state are multiplying its value within five years and no risk at all although this is a general statement it also depends on some factors.

(Second case) If I have 10,000 Rs and would like to invest it for 10 years and my financial position is not too good as I am unable to bear risk and expecting medium returns. Definitely I will go for a fixed deposit which returns me around 8%.

(Third case) All the conditions are same as second case but now my financial position is good and I am expecting much more returns than I will definitely go to equity market where I can earn more from investment.

Now if talk about other investment vehicle, following are some investment instruments which can give you as you expect. I am mentioning these instruments:

(1) Public Provident Fund (PPF):  PPF is a saving instrument in India which is also a tax saving instrument. It is also used as a pension plan for those employees who are not covered by any of pension plans. PPF has a minimum tenure of 15 years and one can deposit minimum 500 and maximum  1,00,000 in a financial year. Interest rates are got increased by 8.6% to 8.8% (compounded Interest) from 1^st April 2012 in compares to last financial year that is 11-12.

(2) Fixed Deposit/Term Deposit: Fixed Deposit is Financial Instrument. FD’s have higher interest rate in comparison to saving account. In saving account you get 3 to 4 % hardly built in FD’s where you can get 7 to 9 % of higher returns. There is also an option of tax saver FD’s under section 80C of Income tax Act 1961.FDs have the tenure from 1 day to 10 years. Nowadays banks offer bank account with FD options. In that your cash in the account automatically converts into FD and amount defined by you always there be in your account. Although you can get a FD without having an account in bank. Post Offices are also doing fixed deposits.

(3) National Saving Certificate: NSC is a government saving      certificate under act 1959.In this scheme there are two options available as on November 2012. These are NSC VIII which is issued for 5 years and NSC IV which is issued for 10 years.

(a) NSC VIII: Issue for -5 years

The rate of interest-8.6%

Minimum Investment-100 Rs, No limit for maximum

Certificates can be kept as collateral security to get a loan

Trust and HUF (Hindu Undivided Family) cannot invest

(b) NSC IX: Issue for -10 years

The rate of interest-8.9%

Minimum Investment-100 Rs, No limit for maximum

Certificates can be kept as collateral security to get a loan

Trust and HUF (Hindu Undivided Family) cannot invest

(4) Mutual Funds: In simple language Mutual Funds is a collective fund of various investors who wants to invest money in a diversify portfolio under expert management. This fund is used to buy different type of securities to diversify the risk by financial experts. Mutual funds have various advantages as it diversify portfolio to minimize risk and get better returns under the supervision of market expert. Now a day’s Bank and many other Financial Institutions provided the service of Mutual Funds where one can invest money to get great returns. Mutual Funds highly involve the risk factor. Returns from Mutual Funds are always very higher from Fixed Deposit, PPF and other saving schemes by Govt.

(5) Foreign exchange Market /Currency Market/Forex: As stock market deals in shares, securities Foreign Exchange /Currency market deals in Currency Exchange.  Currency Exchange Means (when one exchanges the value of one currency to the value of other currency). Foreign Exchange Market is an international market where one can trade in currency of different countries. As the value of different currencies changes regularly (speculation effect) FOREX Market has a very high liquidity. Today’s conditions are very favorable to trade in the currency market because it can give you very higher returns. You can also go for a brokerage service if you don’t have much time to review FOREX market because it needs very regular review of market. The market operates for 24 hour a day and 5 days in a week from Monday to Friday and open from Monday (0:00 GMT) to Saturday (0:00 GMT). So because of its continuous running it is very attractive and good for Speculative Trading (trading to earn from medium or short term market fluctuation). Liquidity is higher in this market.

US dollar (USD), Japanese yen (JPY), English pound sterling (GBP) euro (EUR), and Swiss franc (CHF) have the big shares in FOREX Market.

(6)  Stock Exchange/Stock Market/Equity Market: Stock Market is a market where you buy and sell shares, stocks, bonds and securities with value which is determined by supply and demand factor. Stock Market is a place of low liquidity if we compare with Forex Market. The fluctuation of Stock market is greater than Currency Market that’s why liquidity is low here.

There are 23 stock exchanges in India in which two are NSE (National Stock Exchange), BSE (Bombay Stock Exchange) and 21 are Regional Stock Exchanges.

Opening time is standard. Stock Exchange Market open from Monday to Friday at 9:00 am and close at 4:00pm (Except Saturday, Sunday and National Holidays).

(7) Commodity Market: The commodity market is a market, where one can buy or sell the commodity (Goods). The main function of the commodity market is an assurance of regular communication between buyers and sellers, when transactions are carried out with available batches of goods. The exchange, while developing, started establishing trade customs, commodity standards, standard contracts, performing price quotations, resolving disputes, etc.

There are 70 types of goods which are traded internationally having turnover of 30%. They include metals, soft products, grain, seeds, livestock, and energy sources.

Commodities are not present at the exchange, but sold and bought without checking. At the exchange they sell and buy not certain goods, but also stock contracts, specifying amounts of goods as established by market norms. The seller on the exchange delivers to the buyer not commodities, but a document, confirming the title to goods. Risk is involved in this trading because of price movement in a direction. So a new person should not start on his own practice because this is very volatile in nature. For trade in this market one can go for brokerage services.

(8) Real Estate : In now a days when the rates of real estate’s increasing with each passing day, It is a very good option for a big investment because the chances of risk involve are nil and it will return you what you are not expected. Because this needs a very big amount to invest there are also very options available for that. For example one can go for any financial instrument such as debt in the form of loan from any banks. As it is a very big investment it also needs a high security. The owner has to secure his asset itself. But I recommend this is a very good option for big investment but all the factors depend on you nobody would liable for your loss.

(9) Non Convertible Debenture (NCD) : An NCD (Non Convertible debenture) is essentially a debt instrument with a fixed tenure that pays a certain rate of interest monthly, quarterly, annually or at the end of the tenure. The maturity of NCD is up to 1 year but in India NCD’s with less than 3 months maturity will not be issued. Returns are higher up to 11 to 12%. The minimum amount of investment is 5, 00,000Rs which can be increased by multiple of 1, 00,000. It is a safe option if you are looking for a company having good financial position and credit policy although some risk is still involved always . NCD’s has no TDS deduction. NCD’s can be listed and traded on the Stock Exchange. Although NCD’s are not as secure as FD’s. Some Companies such as Muthoot Finance, Shriram Transport Finance and Manappuram Finance came out with the Non-Convertible Debenture (NCD) issues in the recent. Interest can be received at maturity (cumulative interest) or can be received at regular intervals.

(10) Tax Free Bonds: Government and Private Companies provide these bonds. The main features of these bonds are they are tax free, redeemable, non convertible and secured. Returns comes from these bonds are around 8%. Having a PAN (Permanent Account Number) is mandatory for the purchasing of these bonds. The tenure of these bonds is 10 to 20 years depends on the entity you are looking for.

Tax-free bonds are issued by entities such as the National Highway Authority of India (NHAI), Power Finance Corporation (PFC), Indian Railway Finance Corporation Limited, India Infrastructure Finance Company limited, Rural Electrical Corporation, National Housing Bank, Housing and Urban Development Corporation Limited as they are important to the government in terms of building the country’s infrastructure.

A notification has come dated on 6/11/2012 (Notification no.46/2012 [ F.No. 178/60/2012-(ITS.1)] ) that Government has authorized these entities to sell tax free bonds in financial year 2012-2013.

Beyond these 10 ways there are many options in the market to invest your money where you have to decide. There are Life Insurance, Recurring Deposits and Pension Plans etc. But before investment you should collect all information and market history of that vehicle to ensure good returns and minimization of risk involved.

Good Luck…