How to Achieve Financial Independence Early?

 “Financial independence is the ability to live from the income of your own personal resources”- Jim Rohn

Imagine a bright cloudy day and there you are sipping your margaritas and relaxing at a beach. No worries about going back to the office the next day or about making presentations anymore. No more targets to be achieved on monthly basis, no more extra hours to give & no more meetings to attend. What a peaceful life it’ll be, isn't it?

Well, come back to reality! As this dream is still far-flung & unfortunately, you are not financially independent yet!

But wait, this doesn't mean you can't be financially independent, you can be, let us give you a headstart for the same.

Before going there let's first understand what financial independence means?

Well, simply put, financial independence means not working to pay for your living expenses. But does it mean you have to stop working? Well, it depends, as now you don't ‘have’ to work to pay for your living expenses, you’ll work because you wish to. Not because it’s a compulsion, as it is to you now.

How to plan your financial independence?

The first step towards financial independence is to have a financial plan. Having a financial plan will help you to get a direction for your money management and investments based on your income and liquidity.

Now when it comes to creating a financial plan, a financial planner is the best person to reach for help. A financial planner will first estimate the amount you need to fulfill your financial goals. This will be done based on investments time horizon, assumed rate of return, and lastly the silent killer, inflation. Your financial goal could be anything from retirement planning to a child education plan, to purchasing a car to buying your dream car.

• Start as Early as Possible with SIPs

If you wish to be financially independent by the time you reach your 40s or say 50s then it is recommended to start as early as you get your first paycheck! This way you’ll utilize the best use of compounding over the years.

Start with smaller contributions to SIP for your financial goals. Later, as per your increment in income, you can increase the number of contributions to SIP too! SIP is a great mode to invest, as it gets you in a habit of investing at periodic intervals. Not only this, but SIP also ensures rupee cost averaging by more units at a lower NAV during the market volatility.

Initial investments in equity mutual funds would benefit you with the returns, but when getting closer to your financial goals then moving to a less risky investment is recommended.

• Creation of an Emergency Fund 

If anything COVID has taught is the necessity of having an emergency fund ready for any uncertainties in life. An emergency fund is nothing but an amount that is kept separately from your usual expenses.

There are a few emergencies that are covered under insurance like death, illness, health issues, etc. Insurance is also a form of an emergency fund so make sure you have financial protection against your loss.

But unfortunately, not all emergencies are secured. Let’s suppose, you lost your job, you are laboring hard enough to search for one. But these things normally take time, as you want to avail the best opportunity. Let’s say, it took you 3-4 months searching for another job, now your monthly expenses have to be paid, but the question is how do you do this?

Well, this is where the need for having an emergency fund is discovered. Multiply your monthly expenses into 6, for 6 months, and 12, for 12 months.

Let’s say, your salary is 20,000 per month. Out of which, 8,000 is your rent, 4,000 is for utilities, 2,500 for any EMI’s, Personal expense is 5,000 and investment is 5,500. Now calculating your needs, your necessity expense is 14,500. Considering a minimum 6 months emergency fund, you’ll be needing 87,000 and for 12 months, Rs. 1,74,000 of emergency corpus.

• Avoid taking loans

The EMIs for loans is just a vicious trap and thus, to pay EMI you’ll obviously have to keep working.
Try not to get into the traps of getting personal loans, but if you still end up taking one, try to prepay or foreclose it during the initial years. This will help you to save a substantial amount on the total interest cost.
Although, foreclosure is associated with foreclosure or prepayment charges, so keep this into consideration too! This is especially for loans with higher rates of interest like personal loans, credit card debt, etc.

Such EMIs are just an obstacle standing in the way between you and your financial independence. Make sure you do not end up paying EMIs from your emergency funds, as those funds are solely created for uncertainties.

Bottom Line

Financial independence will be no longer your dream if you save and invest aggressively. Gaining independence is a financial struggle that is not going to be easy, but when achieved, it would be the best thing that happened to you.

A financial planner's assistance can help you to stick to the end. The journey is going to be tough yet beautiful!

What are the key factors to be considered in term insurance?

Researching is a powerful tool. And, when it comes to financial matters, both doing research and having knowledge play a vital role. Now since term insurance has gained immense popularity, knowing about some important factors before purchasing this policy is a crucial thing to do. This is because as term insurance policy demand is increasing so is the competition within the insurance market.

Term insurance is more than just a financial product as it keeps your family financially secure after you. It can’t help to cover the emotional loss your family will face, but it will secure them financially in the future.

Well in this blog, we have gathered a list of factors that you should consider before buying the term insurance: 

● Plan for sufficient Insurance Cover

Whenever you plan to purchase a term insurance plan, the 1st step should be to plan for adequate coverage needs. If you are having any difficulty figuring out the adequate amount, you can always take professional help. Generally, financial advisors believe that a term insurance plan bought with a death benefit should be of at least 8-10 times your gross annual income.

Not only this, the coverage you are planning to take should cover all the liabilities that you have, your living expenses and should also consider your future expenses. These could be anything from a child's education plan to their marriage. So at least your coverage should cover 30 years of your life.

● Policy Tenure

When you buy a policy you would want to stick to it for a longer period, at least till you’re working. This doesn't mean that your policy tenure stops at 55 years of age or say 65. Since the competition is too high, many companies also provide you with a term insurance policy coverage up to 100 years.

● Claim Settlement Ratio of Insurance Company

This is the most important factor out of the lot as the claim settlement ratio gives us an overall number of claims that the insurer has approved.
This is further divided by the overall number of claims it has received.

This ratio will give you an idea of how many claims this firm has settled, and accordingly, you could compare it with other insurers and buy from the best. This data is released every year by the IRDAI (Insurance Regulatory and Development Authority) stating the claim settlement ratio of insurance companies in India.

It is always better to go with a company that has settled higher claims than the others.

● Insurance Rider

Term Insurance Riders provide you with the entitlement of availing supplementary coverage.
Here are some riders to consider:

- Accidental Death Benefit Rider

- Critical Illness Riders

- Income Benefit Rider

- Waiver of Premium Rider

Highlights of Union Budget 2022

Just like every year, Union Budget 2022 has dived in this year too!
On 1st February 2022, Nirmala Sitharaman presented her 4th speech on union budget 2022 as Finance Minister of India.

2022 union budget majorly focused on digital and technology. Not only this there were hosts of measures applicable for various sectors like infrastructure, healthcare, provision of e-services, etc. The agenda behind these measures is to boost growth amid high & rising inflation and pandemic uncertainties.

Union Budget laid out remarkable changes concerning personal income tax structures. Amongst that, ‘Digital Rupee’ became the main magnet of the meeting.

Without further ado, let's dive into the detailed financial sector reading of the measures as disclosed by the finance minister:

1. Direct Taxes – Income Tax

●      A stable and predictable tax regime has been vowed to establish a trustworthy tax regime. A one-time window will be provided to correct the omissions in the ITRs filed and has allowed updating past returns too within two years from the end of the relevant assessment year.

●      For startups, an extension of the tax incentive period has been given. This means that under Section 80-IAC eligible startups will now get tax benefits until March 31, 2023.

●      A reduction of corporate surcharge from 12% to 7% has been advised.

●      For co-operative societies, the Alternate Minimum Tax (AMT) will be reduced to 15%.

●      Income will be taxed by the government from the transfer of digital assets such as crypto at 30%. Except for the cost of acquisition of digital assets, no further deductions will be permitted. The gifting of digital assets will be too taxed in the hands of the receiver. 

●      The employer's contribution towards the NPS (National Pension Scheme) will increase from 10% to 14%

●      At 15% the surcharge on long-term capital gains will be capped.

●      A tax deduction can be claimed on payment of the annuity or lump sum during the lifetime of a differently-abled parent or guardian only after their attaining the age of 60 years. 

2. Indirect Taxes – GST & Customs

●      The last date to make amendments, corrections, upload missed sales invoices or notes, or to claim any missed Input Tax Credit or ITC of one financial year is no longer due to date to file September return of the following year, but it is 30th November of the following year.

●      Failure to file an annual return for 3 months beyond the due date of 30th April will be bound to cancellation of their registration, under Section 29 of the CGST Act.

●      A revised due date to file GSTR-5 by the Non-resident taxable is now moved from 20th of next month to 13th of next month.

●      Sections 42, 43, and 43A of matching, reversal of tax credits have been terminated.

●      Since the GST inception, January 2022, recorded the highest gross GST Revenues of Rs.1,40,986 crore

●      Concessional customs duty on import of capital goods to be phased out, the initial rate of 7.5% to be imposed.

●      Enabling domestic manufacturing will foresee duty concessions on the import of phone chargers, transformers, etc.

●      Customs duty on imitation jewelry has been raised to demoralize their imports.

●      Reduction on duty on specified leather, packaging boxes will be done to incentivize exports.

●      A 5% reduction of customs duty on cut & polished diamond, gems will incur.

●      An extension of a year is given on custom duty on steel scrap to help MSMEs.

●      Reduction in customs duty on methanol.

3. Budget allocation

●     For India, in FY23 a 6.4 % fiscal deficit has been hurled.

●     Revised fiscal obligation assessed at 6.9% of GDP.

●     To help PM Gati Shakti-related investments, states will receive Rs. 1 lakh crore as a 50-year interest-free loan.

●     Around 4.1% of GDP, for the government’s effective capital expenditure, has been estimated at Rs 10.68 lakh crore in 2022-23.

●     The expenditure for capital expenditure to be stepped up sharply by 35.4% from Rs 4.54 lakh crore to Rs 7.50 lakh crore in 2022-23.

4. Investment, Sectoral allocation

●     An expert committee will be set up to review the regulatory framework for venture capital.

●     For the North Eastern Council, PM development initiatives will be executed concerning the northeast. Under this, livelihood activities for both youth and women will be enforced.

5. Virtual currency

●     From 2022-to 2023, RBI is keen to introduce the digital rupee using blockchain technology.

6. MSME

●     The ease of doing business and living will be launched in the next phase.

●     An extension of ECLGS till March-23 has been provided to support the sectors disproportionately impacted by the pandemic. Concerning this, around 95% of ECLGS borrowers are MSMEs. This extension will help the continuation of the handholding of MSMEs and the services sector.

●     More than 60% of India’s GDP consists of the services sector is an important paramount engine for not only economic growth but also for job creation, income generation, and livelihood support.

●     This extension will entail a boom in lending to the MSME sector.

●     The extension of ECLG will provide a boon to lending to the MSME sector..

●     To make MSMEs competitive and resilient, these measures have been taken by the government

7. Digital banking

●     To reduce delays in payments an online bill system will be launched that will be used by central ministries.

In many years, credit growth has increased at its highest by Rs. 5.4 lakh this year.

Is your Health Insurance policy covering COVID-19?

With 3 consecutive years of COVID-19 pandemic, we believe that the impact of coronavirus will stay for a longer-term.  Escorted by COVID-19, other variants like Omnicron have further tensed the situation. During this period, what we all need is emotional and financial support. Well, health insurance serves the purpose, it fulfills your financial support spot in a medical emergency like COVID itself!

Health insurance plans during this pandemic have extended a helping hand to numerous people. But still, there are people who still are suspicious of purchasing health insurance plans, considering the fact that whether or not coronavirus is covered.

What is Coronavirus Health Insurance?

The medical expenses incurred for the treatment of the COVID-19 pandemic is comprehended to be the Coronavirus Health Insurance policy. This medical insurance policy is particularly designed for covering the hospitalization costs of the policyholder irrespective of the illness that you have been diagnosed with (unless it is a critical illness that is not covered).

The most promising part is that being a viral infection itself, covid-19 treatment is covered in almost all health insurance plans cover. This medical insurance covers the pre-and post-hospitalization costs for both coronavirus and its variants like Omnicron!

The essential thing to cite here is that the coronavirus health insurance cover can be benefited by the policyholder from the day they get diagnosed with this viral disease. As covid-19 is new for us, this is the reason this illness is not cited in the pre-existing illness.

Is Your Health Insurance Policy covering COVID-19?

COVID-19 has been with us for the past 3 years but this discovered disease is under all existing health insurance policies for providing health insurance coverage. This means that if health insurance is purchased before you are tested positive then any medical costs under the treatment will be covered.

Under your existing health insurance policy, other variants like omicron or delta variant are also covered.

COVID-19 is not a pre-existing disease thus it is covered as part of the primary hospitalization costs.

But if, if you don’t have a health insurance policy and you decide to buy it after you testes positive for COVID-19, then the treatment expenditures will not be shielded under the policy.

 

Why Should You Invest Considering a Financial Goal?

Goal-based investing is an approach towards investing that is linked with your financial goals. It maps down your savings and investments towards a fixed financial goal. Goal-based investing aims to bring a sense of discipline to your investing method.

It majorly focuses on; age, income, and outlook.

Some common financial goals:

Financial goals are classified into 3 types, one is a short-term goal. They consist of smaller financial targets that could be achieved within a year. For example, getting a new computer or planning a marriage, or home renovation.

Whereas, mid-term goals could take about 5 years to achieve. These are the types of goals that you have planned later down the road. For example, getting a car or saving for a home loan down payment.

The last type is the long-term goal. They require proper planning and determination as the duration increases 5+ years. Since you won’t need the money right away, consider investing the money you are saving for a long-term financial goal. For example, saving for a child’s education, Investing for your retirement plan, etc.

How does one go about selecting the right or the most appropriate or investment product?

Selecting the most appropriate goal solely depends on your future needs. As per the time horizon, one should focus on selecting their financial goal. For example, a child education plan is the best long-term investment for your child. Nowadays, the fees of courses are already so expensive. 

Say you invest 10,000 monthly for 18 years. As you will be needing money by the time your child turns 18. If we expect a return of 11% your investment could grow to Rs. 68.01 lakhs* after 18 years. The power of compounding will grow your wealth exponentially.

Figure out your requirement. Figure out whether you want a short-term, mid-term, or long-term goal. Accordingly, plan for it!

How do we manage the risk of these investment products?

Time horizons of the goal lead us to select the most appropriate goal. There are 2 reasons for this, 1st when you select an equity product, the risk of investing in equity gets mitigated over the long term.

If you invest in an equity product for over 1 year, there is a 60% probability that you’ll make money. But if you extend the time horizon to 3 years the probability of making money in equity increases to 75%. On a 10-year basis, almost 99% of you’ll make money.

This is how you reduce the risk of investing in the equity market.

Types of Mutual Fund Based on The Nature of Investment

 ‘Half-knowledge is worse than ignorance’ -Thomas B. Macaulay

Before making any kind of investment in mutual funds, it becomes very important to have in-depth knowledge of its types and what each of them has in store for investors. The investment objective is the deciding factor in any portfolio of a mutual fund scheme.

For example, an investor Akshay wants to invest in an equity fund so as to obtain capital appreciation via investment, whereas another investor Anjali wants to opt for the hybrid mutual fund so as to diversify the risks. So, the portfolio which will be prepared by the fund manager in both cases will be different, owing to the difference in their investment objectives.

Let us now move ahead and have surficial knowledge about the types of a mutual fund based on the nature of the investment. The types are mentioned as followed- 

1.  Equity fund - Funds that usually invest the pooled money in equity shares of a company are known as equity mutual funds. The securities of equity mutual funds are listed on the stock exchange.

Some examples/ types of equity funds include- Market segment-based funds, sector funds, thematic funds, strategy-based schemes, dividend yield schemes, value funds, growth funds, etc. 

2.  Debt fund- Debt is a term used to depict the money borrowed by one party from another. The investments made in debt securities namely treasury bills, Government Securities, and Debentures are known as Debt funds.

Some examples/types of debt funds include Gilt funds, corporate bonds fund (on the basis of the issuer); liquid schemes, short-term debt schemes (on the basis of tenor); diversified debt funds, Junk bond schemes (on the basis of investment strategy), Overnight fund, Low Duration fund, etc.

3. Hybrid funds- Hybrid funds are basically those funds that invest in a combination of various asset classes such as stocks, cash, debit, and bond. They are often known as Balanced Funds.

Some examples/types of the same include- Debt oriented Hybrid Funds, Monthly Income plans, Capital Protected Schemes, etc. 

4) Solution-oriented Fund Schemes- The investment options which cater to the need of an investor in terms of specific goals are known as Solution-oriented fund schemes.

Here, the specific goal can be aimed at retirement planning, higher education of children, etc. Some examples/ types of the same include Retirement fund, Children’s fund, etc.  

OTHER SCHEMES-  

1. Index Funds- Often called exchange-traded funds are funds that tend to follow pre-set rules in order to keep a track of a specified pool of underlying investments.  

2. Fund of funds- Also known as an overseas or domestic fund, is basically a basket of funds that invest in other funds.  

3. Real Estate Fund Schemes/ Real Estate Investment Trusts-

●      Real Estate Mutual Fund- invests directly in assets of real estate, according to the rules and regulations specified by SEBI.

●      Real Estate Investment Trusts (REIT)- invests in assets of commercial real estate. These are mainly trusts that are legally registered with SEBI.

●      Infrastructure Investment Trusts (InvIT)- are trusts which are registered with SEBI and are known to invest in the infrastructure sector. 

Want good returns? Learn about ELSS

 As working individuals, it is amicable if you think about savings, as this entity usually proves helpful in times of need or for future needs as well. According to some experts among the tax-saving options available equity-linked savings schemes or ELSS is that type of mutual fund which tends to offer an outstanding combination of a good return, short lock-in period as well as highly flexible scheme. 

As a matter of fact, this type of mutual fund forms the top choice for investors. 

What is ELSS? 

The mutual fund scheme that is diversified in nature and enables dual tax saving, due to the growth potential of equities, is termed as ELSS. This mutual fund scheme basically invests in stocks, but it differs from other tax-saving options in the sense that a shorter lock-in period of 3 years is associated with it. 

If you are a first-time investor then equity-linked saving is an excellent option to opt for because it provided two major benefits namely, tax saving and wealth creation. 

Point to remember- If you decide to invest in ELSS, then you must have knowledge about a very important mandate associated with it. As per Section 80C of the Income Tax Act, if you make an investment up to ₹1.5 lakh per annum in ELSS, then you are eligible for income deduction. 

This further implies that you can subtract the amount you decide to invest in ELSS from your all-over income, so as to reduce your taxable income. This ultimately leads to a reduction in the tax amount you need to pay. 

Example- Let us elaborate on the concept of ELSS with a real-life example. Consider a person named Ankita who works as a chartered accountant in a reputed firm and earns a taxable income of ₹18 lakh per annum. This puts her into Tax bracket of 30%. Further, she decides to invest ₹1.5 lakh in the ELSS fund. 

Now, as per Section 80C of the Income Tax Act, she is left with a taxable income of ₹16.5 lakh and on the other, she will also be saving the money she decided to invest in the ELSS fund.

Advantages of investing in ELSS fund-

• It offers a shorter lock-in period of 3 years.
• It is a perfect tool for wealth creation because it invests in inequities.
• There is no upper limit as to how much you can invest in this fund.
• Provides better-tax returns.
• Investing in ELSS comes with no complications and is very simple.