Creating a substantial retirement corpus is a crucial aspect of financial planning. This is to ensure that you have adequate funds to meet your various expenses during your retirement. With this in focus, the Indian government launched the National Pension Scheme (NPS) to provide investors with an opportunity to take care of their life, post their retirement.

What is NPS?

The National Pension System (NPS) is a government-backed pension scheme. It was first launched in 2004 solely for government employees. However, the scheme opened up to every investor in the country in 2009. The goal of NPS is to provide financial security to investors in their old age.

How does NPS work?

Under the NPS investment scheme, you can make investments towards your pension account on a regular basis during your working life. And when you reach your retirement age, you can withdraw a portion of the fund as a lump sum. The remaining portion is used to purchase an annuity so you can benefit from a regular income during your retirement years.

You can join the NPS scheme voluntarily, or you can opt for the plan offered by your employer. If your company provides NPS, it matches your investment and makes an equal contribution to the fund. Professional fund managers regulated by the Pension Fund Regulatory and Development Authority (PFRDA) invest your funds in different portfolios. This includes government bonds, shares and corporate debentures.

Who can invest in NPS?

All Indian citizens between the ages of 18 to 60 are eligible to make investments in NPS. So, irrespective of whether you are a government employee, private employee or self-employed, you can invest in NPS. This includes Non-Resident Indians (NRIs) as well. The only condition for joining the scheme is that you must fulfil all the necessary Know Your Customer (KYC) requirements to be eligible. When you open your NPS account, you are provided with a unique 12-digit number known as the Permanent Retirement Account Number (PRAN).

Pros and cons of investing in NPS

Like all the other investment avenues, the NPS too has its pros and cons. These are:

Pros

• The NPS is a voluntary scheme open for all Indians adults to invest
• It is highly flexible because you have the freedom to choose your asset allocation between equity and debt based on your investment requirements
• You can invest as much as you want each year. There is no limit on the maximum investment limit
• You can operate your account from anywhere in the country
• The 60% corpus that you withdraw on retirement is tax-free

Cons

• No guarantee on the rate of return
• While there is no maximum limit, you need to make a minimum yearly contribution of Rs. 6,000 to ensure that your account is active

What are the investment choices available in NPS?

The NPS offers two choices:

• Active Choice: You can decide how the money should be invested in different assets. This includes a combination of stocks, fixed income instruments and government securities.
• Auto choice: This is the default option where your money is automatically invested in different avenues based on your age.

Tax benefits

Every investor can claim a tax deduction of up to 10% of gross income under Section 80CCD (1) of the Income Tax Act. This is within the overall ceiling of Rs. 1.5 lakh permitted under Section 80C and Section 80CCE. In addition, the contribution made by your employer is exempted under Section 80CCD (2). You can also claim an additional deduction of Rs. 50,000 under Section 80CCD (1B).

Conclusion

If you’re planning your retirement, you can consider investing in NPS as an option for your golden years. But do ensure that you have a healthy mix of equity and debt in your other investments to help you build wealth.

Title caught your eye? Picture these.

• Apple launches the newest iPhone and you just must have it. How will fund your purchase?
• Your company doesn’t do too well, and to stay afloat, the management decides to let go off some employees. You’re one of them. How will you meet your expenses until you find a new job?
• You’re having a good time baking a cake for a bake sale. Your oven malfunctions and there’s a fire. How do you deal with the repairs?
• The paint on your walls is wearing off, and you want to get a paint job done. How will you fund this?

The thing these statements have in common is that all of these require money. BUT there is a difference – some of these are planned expenses that you can save for over time (the iPhone and paint job), and some aren’t. Nonetheless, you need to be prepared for these.

This is where an emergency fund comes in. An emergency fund is money that you’ve set aside to cover any financial surprises life throws your way.

What is an emergency?

An emergency is “a serious, unexpected, and often dangerous situation requiring immediate action.” For example: job loss, a medical or dental emergency, unexpected repairs, unplanned travel.

How much should you save for emergencies?

The rule of thumb is to ideally have three-six months of expenses saved in an emergency fund. You can arrive at this by adding up your monthly expenses and multiplying it by the number of months. While you include regular bills on food, rent, electricity, water, fuel and other expenses, don’t forget to include loan payments (in case you have one or are considering one) and payments you make once a year like insurance.

Where can you put your emergency savings?

NOT your savings account. Why? While your savings are easily accessible, earn an interest and have no risk, it’s not a good idea to use this for emergencies. This is because you might give into the temptation to spend just a little extra every now and then, and this could eat into those funds.

Now, you would want your emergency fund to be an alternate to your savings account – one without a debit/credit card that’ll allow you to spend. Liquid funds are one such alternate. They’re easily accessible, can earn higher than savings returns, and come with low risk. Some liquid funds even come with an instant redemption facility. You may consider ultra-short term funds if your holding period is 3-6 months.

How to build your emergency fund?

1. Regularly invest– Set up an auto-debit from your salary account to this fund. This way, when money comes in, a part of it is invested for emergencies.
2. Review your expenses to see what you can do without– There’s a fine line between needs and wants, and even when it comes to wants, you don’t have to give up everything. One cab ride less, or fewer cigarettes a day and you might have money left at the end of the month.
3. Use spare cash– Reviewing your expenses to see what you can do without can result in having cash to spare. Transfer this to your fund, so it’s untouchable until an emergency.

Benefits of an emergency fund

1. Keeps you from spending unnecessarily– If you keep your emergency money in the same account as your savings, you may be tempted to splurge a little on frivolous things. Keeping it out of immediate reach keeps you from spending it.
2. Decreased dependency on borrowing– An emergency fund keeps you from swiping your credit card unnecessarily, or from even borrowing from the bank to meet emergencies. This way you won’t have to worry on paying interest, fees or a penalty on debt.
3. Lower levels of stress– Building an emergency fund prepares you to meet any financial emergencies, and this way you’ve lower levels of stress than if you’ve to deal with borrowing and interest payments.

Things to remember:

1. Make sure you differentiate between planned expenses and emergencies
2. Your emergency fund should fit in with your other goals
3. Don’t forget to review your emergency fund from time to time, so you can add adequately to it with changes in your lifestyle and keep up with inflation.

If you haven’t got an emergency fund already, start investing for it today.

As a TV viewer, it is likely that you have come across mutual fund commercials that end with the disclaimer: “Mutual fund investments are subject to market risks. Please read the offer document carefully before investing.” Does this disclaimer serve as a deterrent for you to invest in mutual funds because of the “risk factor”? Do you fear the loss of capital due to market volatility, and thus maintain an arm’s distance from mutual funds? If you are answering in the affirmative, here is what you need to know about mutual fund risks.

Decoding market risk

Like any other investment option, mutual fund investments too are subject to varying degrees of risk. The most significant of these is market risk or volatility. Volatility is the fluctuation in the prices of stocks or bonds. That’s because stocks or bonds are market-related instruments that react to economic events such as changes in interest rate or policy changes, geopolitical events such as war-like conditions, or inflationary risks- where the purchasing power of assets are reduced due to rising costs of goods and services. Volatility is an involuntary risk that all market instruments are subject to.

Different funds, different risks

Different mutual funds contain different kinds of asset classes in order to meet certain investment objectives. To meet these objectives, fund managers take some calculated risks. For instance, while equity-oriented funds may seem susceptible to short-term volatility, they can deliver superior returns beating inflationary risks over the long-term. Equity funds can, thus, be used to create wealth in the long run.

On the other hand, debt-oriented funds such as liquid funds are exposed to a far lesser degree of risk as compared to equity funds and therefore generate returns in line with the risk taken. However, the investment objective of these funds is capital protection and stable returns. The returns in this case may not be as high as equity funds.

Make informed investment decisions

As an investor, the first step you need to take is to assess your own financial goals and chalk out a financial plan. A good financial plan will help you understand how long you have to meet your goals. It helps you set a timeframe and a target.

The final step is to make an informed investment decision according to your risk appetite. Therefore, there is no one-size-fits-all policy when it comes to investing in mutual funds. Each investor must take a calculated amount of risk based on his individual circumstances. For instance, if you are just starting out in your career, you may be more willing to ride the ups and downs in the market to create wealth over a longer timeframe, as compared to someone closer to his retirement who may be concerned about capital protection and a regular stream of income, especially in his retirement years. He may be willing to accept a far lesser degree of risk.

The last word

To conclude, in the words of Warren Buffet: “Risk comes from not knowing what you are doing.” Buffet reinforces that as an investor that you are susceptible to risks only if you are not working with an investment plan and your investment decisions are not in sync with your financial goals. It is fair to say that when you are using your financial goals and the timeframe to meet these goals as a guiding star to assess the level of risk you are comfortable with, some risks may seem worth taking.

If there is the myth that most investors believe, it is that mutual funds with higher NAV should be avoided as they are expensive.

But the truth is that the NAV makes no difference to the returns.

Let’s first clarify what the Net Asset Value (NAV) is. The NAV is the value of a mutual fund scheme’s assets minus the value of the liabilities per unit. It is the price at which you buy the unit of a scheme. You also sell your fund at the NAV minus any exit load, if applicable.

Many investors confuse NAV with the stock price. Stock price depends on the fundamentals and future prospects of the company. After the company goes public and starts trading on the exchange, its price is determined by the supply and demand of its share in the market. The NAV on the other hand, is not decided by any market action. The NAV just reflects the current value of the portfolio. The fund house takes into account the market value of all the assets on a daily basis to calculate the NAV.

Comparing the NAV of any two mutual fund schemes, does not tell you anything about the mutual fund performance.

Illustration:

• Consider two schemes, Fund A and Fund B
• NAV of Fund A is Rs 90 and NAV of Fund B is Rs 110.
• Both Fund A and Fund B have identical portfolios and you invest Rs 10,000 in both the funds
• In Fund A you will get 111.11 (10000/90) units and in Fund B, 90.91 (10000/110) units
• For example, if both their NAVs go up by 10% that year
• NAV of Fund A will grow to Rs 99 and NAV of Fund B will grow to Rs 121
• The value of your investments will grow to Rs 11,000 (99*111.11) in Fund A and Rs 11,000 (121*90.91) in Fund B as well.
• In both the funds, the value of your investment remains the same

So, the NAV makes no difference to the performance of the fund. Next time when you want to evaluate a fund, look at its performance track record, portfolio and how it suits your profile. NAV is inconsequential.

As investors, we always want to make sure that our investments give us the best returns. We look at performance numbers, fund rankings and what not to ensure that we invest in the best fund there is. But, there’s a difference between choosing the best fund and the best fund for you.

What’s this difference? The best fund in the market may not necessarily meet your investment needs.

So then, how do you choose the fund that is just right for you? Here’s a little checklist:

1. Assess your investment goals, timeframe and risk appetite

When you know what your financial goal is, how long you’re investing for and how much risk you can take, you can narrow down funds from the existing universe to invest in. For example: You may want a car that costs 5,00,000 in 3 years and you don’t want a fund that has many extreme ups and downs. With this in mind, a mid- or a small-cap fund is not the right fund to invest in even though it may have delivered the highest returns that year. A balanced hybrid fund may be a better choice.

Check out our blogs on equity, debt and hybrid mutual funds to understand which funds suit what needs.

2. Investment objective of the fund

There’s two ways to look at this: a) is your goal capital appreciation or income generation? b) where does your fund invest? If your goal is capital appreciation over the long term, look at funds that invest in in companies that are growing or have the potential to grow, or ones that are undervalued at the current market price. If your goal is income generation, short term debt funds or liquid funds are what you could consider.

3. Evaluating the fund and the manager

There’s plenty of information available today on the performance of funds and fund managers.

When it comes to fund performance, there’s two things to look at: performance of the fund against the benchmark, and consistency in fund performance. Has the fund beaten its benchmark year on year? Has it done better relative to its peers?

As for the fund manager’s track record, looking at it will give you an idea of how he’s managed the fund in bullish and bearish phases of the markets. Looking at rolling returns of the fund will give you an idea of the least possible, median, and highest possible return of the fund for a timeframe. This data is not readily available, and you can ask your financial advisor or the AMC for it.

4. Expense ratios

Expense ratio is the fee the fund house charges you to manage the operations of your fund. This is deducted from the NAV of the fund before it is reported. It’s good to know what your fund is charging you, but it isn’t much of a detrimental factor. Having said that, if you’ve two funds and all else being similar i.e. portfolio, AUM, returns, etc., and one fund charges you a lesser expense ratio over the other, you may opt for that fund after discussing with your financial advisor.

5. Review your Asset Allocation

When you pick a fund for your portfolio, you need to keep in mind that it fits the portfolio allocation that you’re trying to achieve with your investments. This is because by adding it to your portfolio, you may skew your asset allocation and take on more risk than required or lesser risk to be able to generate the kind of returns you want.

Picking a mutual fund to invest in may seem like quite a task but understanding your goals and choosing a fund in line with them can make all the difference to your portfolio. You can always talk to a financial advisor for help with choosing the right fund.

SEBI has categorized mutual funds into equity, debt, hybrid, solution-oriented schemes and other schemes. We’ve addressed equity mutual funds and debt mutual funds in our earlier articles. We’ll now look at hybrid funds.

Hybrid funds, as the name suggests, are a mix of equity and debt in different proportions.

Funds that have a higher allocation to equity than debt are equity-oriented hybrid funds and those that have a higher allocation to debt are debt-oriented hybrid funds.

Let’s look at how SEBI has categorized hybrid funds.

Conservative Hybrid Fund

Conservative hybrid funds have a very low allocation to equity and equity related instruments – about 10% – 25% of total assets, and the rest is invested in debt. As a result of their minimal allocation to equity, these funds come with stable returns and are suitable for investors with a short-term investment horizon of 2-3 years

Balanced Hybrid Fund

Balanced hybrid funds seek to strike an equilibrium between the equity and debt components – the allocation to each comprising between 40% and 60% of the AUM. As these funds have an allocation to equity that is fairly high (minimum 65% in pure equity funds), they are suitable for investors who have a moderately high-risk appetite and investment horizon of 3-5 years.

Aggressive Hybrid Fund

Aggressive hybrid funds allocate a greater portion of the portfolio to equity & equity related instruments – between 65% and 80% of the AUM, and the remaining 20% – 35% of the AUM is invested in debt securities. This fund is suitable for investors with a high-risk appetite and an investment horizon of 3-5 years.

Dynamic Asset Allocation or Balanced Advantage

Dynamic Asset Allocation funds or Balanced Advantage funds, as the name says allocate AUM to equity and debt dynamically. SEBI has not mandated that a certain percentage is to be invested in equity and another in debt. This allocation is at the fund manager’s discretion. The beauty of this fund type is that when markets are growing, fund managers can capitalise on the growth with a higher allocation to equity, and when they are falling – they can cushion the investment with a higher allocation to debt. These funds are for investors who have an investment horizon of 3- 5 years.

Multi Asset Allocation Funds

Multi asset allocation funds invest in at least three asset classes with a minimum allocation of 10% in each of the three asset classes. In India, asset classes include equity, debt, gold ETFs. In foreign markets, funds also invest in real estate, commodities, hedge funds and private equity. Investors can choose between aggressive, prudent or conservative allocation to these asset classes depending on their risk appetite. One thing to note here is that foreign securities are not treated as an asset class on their own. These funds are suitable for investors who have an investment timeframe of at 3-5 years.

Arbitrage Funds

Arbitrage funds are those that follow an arbitrage strategy. Arbitrage, by definition, is the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms to take advantage of different prices for the same asset. The difference in the cost price and selling price is the return generated by the fund. These funds invest a minimum 65% of the AUM in equity & equity related instruments. What sets arbitrage funds apart from balanced hybrid funds is that in the latter, while allocation may overlap, no arbitrage is allowed in the fund. Arbitrage funds are suitable for investors with a medium-term horizon of 3-5 years.

Equity Savings Funds

Equity savings funds invest in equity, debt and seek to generate returns capitalising on arbitrage opportunities. The minimum allocation to equity & equity related instruments is 65% of the AUM, and minimum debt allocation is 10% of the AUM. A part of the equity portion is hedged – invested to reduce the risk of adverse price movements in an asset. This minimum hedged portion depends on each scheme and can be found in the Scheme Information Document (SID). These funds are suitable for investors with an investment timeframe of 2-3 years.

Hybrid funds are not a substitute for equity funds. However, beginner investors could explore these before moving to equity funds for wealth creation. Which fund you invest in should be in line with your investment goals, risk appetite and timeframe. Consult an advisor today!

Mutual funds are of three types: Equity, Debt, or a combination of the two called Hybrid funds. In this article we will discuss equity mutual funds.

According to SEBI, an Equity Mutual Fund invests at least 65% of its corpus in equities and equity related instruments. Here is a brief guide on the various categories of Equity Mutual Funds and how each fund category will complement your investment goals.

Before we begin, you need to have a clear understanding of market capitalization. A company’s size is an important criterion for Mutual Funds when picking stocks for an equity portfolio. Market Capitalization is the total value of a company traded on the stock market. It is calculated by multiplying the total number of shares available with the public by the current market price of the stock.

Large Cap: 1^st – 100^th company in terms of market capitalization

Mid Cap: 101^st – 250^th company in terms of market capitalization

Small Cap: 251^st company onwards in terms of market capitalization

As of December 2018, stocks with market cap of above Rs 27000 crore are large caps; stocks with market cap of more than Rs 8000 crore and less than Rs 27000 crore are mid caps and stocks with market cap of below Rs 8000 crore are small caps. (Source: AMFI; these numbers are subject to revisions)

Large Cap Funds

Large Cap Funds predominantly invest in stocks of large companies. These companies are leaders in their respective industries, eg: like HDFC bank in banking sector and Reliance Industries in refineries. Large Cap Funds invest at least 80 percent of the corpus in large cap companies.

Mid Cap Funds

Mid Cap Funds invest in mid sized companies. These are growing companies. You can have an investment tenure of 3 to 5 years when investing in mid cap funds as these funds invest in stocks which would need at least this much time to deliver for growth. Mid Cap Funds invest at least 65 percent of the corpus in mid cap companies.

Small Cap Funds

Small Cap Funds predominantly invest at least 65 percent of their corpus in small companies. You can have an investment tenure of 5 years when investing in small cap funds.

Large & Mid Cap Funds

Large & Mid cap funds invest in both large and mid-sized companies. These funds are less volatile compared to pure mid cap funds. They invest at least 35 percent of the corpus in large cap companies and 35 percent of the corpus in mid cap companies.

Multi Cap Funds

These funds invest in a combination of large, medium and small companies, thus diversifying or minimising risk.

Focused Funds

Focussed Funds invest in a concentrated portfolio of stocks. It invests in a maximum of 30 stocks and may be slightly riskier than diversified funds. This is because allocation to each stock can be in the range of 5% to 10% of the portfolio.

ELSS

Equity Linked Savings Scheme (ELSS) is a type of equity fund which qualifies for a tax deduction of up to Rs 1.5 lakhs under Section 80 C. Each investment in the ELSS scheme is locked-in for 3 years. An ELSS fund is like a diversified equity fund, investing across market capitalisation.

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Sectoral/Thematic

Sectoral funds invest solely in a business that operate in a particular industry or sector of the economy. Investors who have a high-risk appetite prefer these funds. You can choose and invest in a sector fund when you believe the sector will outperform the overall market. For example, if you believe there will be a series of rate cuts and banks would benefit due to that, banking sector fund will be a beneficiary. Sector funds tend to be riskier and more volatile than the broader market because they are less diversified. It is prudent to allocate not more than 5% of your portfolio in sector funds.

Other Category Funds

Categories such as dividend yield funds, value funds and contra funds have a defined strategy and the fund manager follows the same. These funds do not have a market cap restriction and will follow a multi cap strategy investing across different market cap segments. The risk level of these funds will be like that of multi cap funds.

Dividend Yield Fund

Dividend yield is the ratio of the past dividend paid per share to its market price. Companies with high dividend yield pay a substantial share of its profits in the form of dividends. Dividend yield funds invest in dividend yield stocks. A dividend yield fund does not have any obligation to pay dividends. Hence a dividend yield fund has more to do with identifying value stocks and not stocks that would be paying high dividend.

Value Fund

The fund manager of a Value Fund looks for companies with good businesses that are trading cheap. When the market realises its potential, the stock price of the company will move up. Value funds are typically for long term investing as they have the potential to steadily grow over time.

Contra Fund

Contra funds take a contrarian view of the market. These funds may invest in stocks that have given negative returns or underperformed the market. The fund manager identifies those underperforming stocks which have the potential to grow in the future.

The categorisation of mutual funds has brought in more transparency and clarity for the investors. It will be easier now for investors to distinguish between funds. You should have an investment horizon of at least 3 years when investing in equity mutual funds. By staying invested for a longer period, the benefit of compounding helps you grow your investment. You must review your portfolio to align it with your financial goals. We shall discuss the debt and hybrid fund categories in other articles.

Debt mutual funds are those that invest in fixed income instruments – such as corporate and government bonds, overnight securities, corporate debt securities, money market instruments etc. These funds are ideal for investors who are averse to risk and seek to generate regular income.

Debt funds are a good tool to use if you want steady income with low volatility and higher than bank returns. They also come with greater tax-efficiency than these products. We’ll address the advantages of debt funds and compare them with similar products in another article.

Let’s look at how SEBI has categorized debt funds.

1. Overnight Funds

These funds invest in overnight securities having a maturity of 1 day. They are the least risky of all debt fund categories, and this low risk comes with low returns. How these funds work is that at the beginning of each day, the AUM is invested in overnight securities, and since they mature the next day, the fund manager can buy fresh overnight bonds the next day using the principal and return earned. NAV of this fund will increase little by little over time. The advantage of this is that changes in the RBI rate, credit rating of the borrower do not affect your investment.

2. Liquid Funds

Liquid funds invest in debt and money market securities such as treasury bills, government securities, call money with a maturity of up to 91 days. These are a good tool to use to park surpluses and to build an emergency fund. These can also be used to transfer that surplus to an equity fund using a Systematic Transfer Plan (STP). What’s interesting to note is that some liquid funds even come with an instant redemption facility.

3. Money Market Funds

Money market funds invest in money market instruments such as commercial papers, certificates of deposit, treasury bills, repo agreements of the highest quality with a maturity of up to 1 year. These are suitable for investors with low risk appetite and an investment horizon of at least a year.

4. Corporate Bond Funds

Corporate Bond Funds invest in debt instruments issued by companies. These instruments comprise of the highest rated bonds, debentures, commercial papers and structured obligations. Minimum investment in corporate bonds by these funds is 80% of the AUM. They are suitable for investors with an investment tenure of 3-5 years.

5. Credit Risk Funds

Credit-risk funds are debt funds that invest at least 65% of total assets in papers rated less than AA (not of the highest quality). As these funds take on more risk than most other debt funds, they come with the ability to generate higher returns too. It is suitable for investors who can assume high risk and have an investment horizon of at least 3 years.

6. Banking and PSU Funds

Banking and PSU debt funds invest at least 80% of their corpus in debt instruments of banks, Public Sector Undertakings and Public Financial Institutions. They come with low risk and are suitable for investors who have an investment horizon of 1-2 years.

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7. Duration funds

Duration funds invest in debt and money market instruments that have different maturities. Based on the maturity of instruments, they are classified into ultra-short (3-6 months), low duration (6-12 months), short duration (1-3 years), medium duration (3-4 years), medium to long duration (4-7 years), long duration (7+ years). The longer the tenure of the fund, the higher its ability to take risk. Investors in these funds should invest if the maturities are in line with their investment horizon as the fund will take this time to give an investor his principal and the interest owed to him (Macaulay duration) for investing in the fund.

8. Dynamic Bond Funds

Dynamic bond funds invest in instruments with varying durations. These are actively managed funds and are suitable for investors who find it difficult to judge interest rate movement and have an investment horizon of 3+ years. This is because these funds hold securities with reducing portfolio maturity when interest rates rise and increasing portfolio maturity when interest rates fall.

9. Gilt Funds

Gilt funds invest at least 80% of their total assets in Government securities (G-secs). These are issued by central and state governments across various tenures, both long and short. They usually have no default risk as these are government backed. They do come with higher interest rate risk for instruments with higher maturities. These funds are suitable for investors with an investment horizon of 3+ years and benefit the most in a falling interest rate environment.

10. Gilt Fund with 10-year constant duration

Gilt funds as discussed earlier invest in government securities. In the case of funds with a 10-year constant duration, assets held in the fund have a Macaulay duration of 10 years and are suitable for investors with this investment horizon in mind.

11. Floater Funds

Floater funds invest a minimum of 65% of assets in floating rate instruments and the rest in fixed income securities. Floating rate instruments are those that don’t have a fixed interest. If interest rates rise, the interest from these funds also rise immediately. These funds invest in securities that have medium to long-term maturities.

12. Fixed Maturity Plans (FMPs)

FMPs are passively managed close-ended funds, where investments are held to maturity. These can be considered as an alternative to FDs as they have the potential to deliver FD beating returns. Another advantage they have over FDs are that they come with better tax-efficiency. We will discuss tax-efficieny of mutual funds in another article.

It’s the end of another financial year, and many of you will be receiving your annual performance bonus. Exciting time, isn’t it? I bet you’ve got fantastic plans of how to splurge it. I’ve got them too, with a little boring, but necessary checklist I thought I should share.

I hope that maybe it helps you too. Without further ado, here’s 7 bonus ideas you need in your life.

1. Pay off debt:Credit card bills, student loans, vehicle or home loans, you could have any of these. It might be a good idea to pay these bills and also set aside some money for any future loans you may be considering. This will minimise the principal amount you owe and you can save on hefty interest payments.
2. Add to your retirement fund:Your retirement may be a long way off, but no one tells you it’s one of the first goals you should start saving for. Why? Look at cost of living today. If you spend 30,000 a month today as living expenses, 20 years down the line assuming inflation is at 6%, you’ll be spending 1.72 lakhs a month. Start putting aside a little by little with a Systematic Investment Plan in mutual funds to build wealth for your retirement. You can also invest in NPS and PPF for relative safety. Use a retirement calculator to figure out how much your SIP amount should be.
3. Build an emergency fund:Life is unpredictable. So, isn’t it a smart move to be prepared? You may lose your job, or your company isn’t doing well and can’t pay salaries, or for some reason, there is little or no income. It’s ideal to have at least 6 months of expenses saved in an emergency fund. Do not touch this unless it truly is an emergency. Consider a liquid fund for this. Frivolous purchases are not emergencies and can be planned.
4. Invest for longer term, big ticket goals: You’ve got a lumpsum in hand, why blow it all up now? You may want to purchase a car in the future, make the down payment on a house, fund your child’s higher education, or even start a business. Whatever your goal may be, no matter how far, start setting aside funds today for it. You can even start a SIPin mutual funds. Time and compounding will work for you.
5. Get insurance: Ever considered who will take care of your family should anything happen to you? Get a term plan to secure your family financially in case you die. The earlier you get it, the lesser the premiums cost. Don’t delay this until next year.
6. Buy health cover for your family: Health is wealth, and when your bonus can help you secure your family’s health, why not? There could be a time when your employer’s health cover may not be enough to cover all expenses. Consider purchasing a family floater health plan.

Invest in yourself: An investment in yourself is the best investment. Take a course, learn a skill, join the gym, read! Meet people, socialise, and don’t forget to have fun. You’ve earned it.

Health is wealth. Good health is not just the absence of any illness, but complete physical and mental wellness of an individual.

In today’s world, stress affects both physical and mental health – and one contributor to stress is the state an individual’s finances.

We all have financial goals we want to reach, and savings just don’t cut it. It’s important to invest. While we invest, how do we know we’re doing the right thing for our goals?

Here’s where your financial doctor, or advisor, comes into the picture. Just like you need a doctor for your physical or mental health, you need one for your finances too.

So, how can your financial doctor help you?

1. Understand your financial health –Your financial advisor will work with you to assess your current financial health – your assets, liabilities, income and expenses. He/she will also consider any expected future obligations (insurance, taxes, other long-term expenses) and sources of income (pension, gifts, etc.) to get a complete picture of where you stand.
2. Assess your goals –Once your advisor maps out where you stand, he/she will understand your investment goals, time frame and risk appetite. An understanding of risk appetite will allow your advisor to determine your asset allocation. He/she will also assess your retirement needs at this stage.Invest now
3. Build the financial plan –The next stage is where your advisor charts out a comprehensive financial plan for your goals. This plan will include details such as where to invest, how much to invest, for how long to invest. He/she has the expertise to understand how all these products will work in tandem for you to achieve your goals. The plan will also look at your retirement plan, your projected withdrawal rates during retirement and have the best- and worst-case scenarios for your expected life span. If you’re already investing for your goals, your advisor will review your current habits and suggest a course of action. If you’re investing without goals in mind, your advisor will help you allocate your existing investments for your goals. Read why goal-based investing is important here. Once your plan is ready, it’s on you to implement it.
4. Help you understand where you’re investing –When building your financial plan, it is important to understand the products you’re investing in. The pros and cons, how it fits in your portfolio, what it can do for you – your advisor will help you with this.
5. Regular reviews and adjustments –It’s a good idea to revisit your investments regularly to check if you’re on track, review what you’re doing and see if you need to adjust your plan to incorporate new goals or modify/remove existing ones. Depending on your needs, your advisor will suggest changes to take you closer to your goals.

Financial advisors are the doctors you need for your financial health. With their expertise, you can get the best out of your investments.