Top 10 doubts and answers in Financial Planning which every beginner investor has

Most of the newcomers and even some experienced people struggle with basic questions and concepts of Financial planning. I hear most of the readers on this blog and even over the chat with them asking the same kind of questions over and over again.

So here are top 10 questions and their answers. Read them and find out if it contains some of your doubts too…

Financial Planning

Question 1# I want to Buy a Life Insurance for my Financial dependents. What Should I buy?

Answer: Term Insurance, split the Insurance between 2 Insurance providers, better to take 5% increasing Cover option.

Question 2# I have to save for my retirement and Children Education and Marriage. It’s more than 15 years away. I can take small risk to moderate risk, where should I invest?

Answer: Invest in Equity Diversified Mutual funds via SIP. Keep reviewing the funds every 2-3 yrs. For now, choose the funds from this list of Best Mutual funds in 2009.

Question 3# I have no Idea about Stock Market and How it works and I am not even Interested to know how it works! Is there any way I can invest in Equity and Enjoy high returns?

Answer: Yes, The answer is same as #2. Invest in Equity Diversified Mutual funds via SIP method. Keep reviewing the funds every 2-3 yrs. For now, choose the funds from this list of Best Mutual funds in 2009. If you are not a big risk taken and have some heart problem then Invest in Balanced funds.

Question 4# I have recently got very excited by the idea of doing Stock Trading and make some consistent money from it. Any Tips?

Answer: Better do what you are doing right now… Trading is not everyone’s cup of tea. Unless you are very determined of making it as a career or a semi-career, don’t even try Trading unless you have no hobbies to keep your self-busy with. Read How a newcomer should start in Stock Markets first.

Question 5# I want to invest in FD or Endowment Policies for my child Education or Retirement which is more than 10 yrs away, Shall I?

Answer: No!! FD and Endowment Policies provide very bad “post tax post inflation” returns… most of the times… it’s Negative return after adjusting inflation and tax. The purchasing power of your money will decrease drastically in these kinds of Endowment policies.

Always remember

Short term = Debt
Long term = Equity

That’s the RULE NO 1. Look at how to choose the best FD for yourself.

Question 6# I need some money for my Sister’s Education or Marriage in 2 yrs, shall I Invest in Stocks or Mutual funds. I can see markets are rising now and I am sure that it will give me great Returns.

Answer: No!! It’s an Important goal and you can’t risk with that. Stay Away from Equity…The first thing you have to ask yourself is “Is Direct Equity for you”? And what do you mean you are “sure” about the markets moving up?

There is no such thing.. Markets didn’t even like Einstein and Newton who tried Predicting the movements, who are you !! Even though markets look easy, it’s too tough to make such calls…

Question 7#I have invested in some Endowment and money back policies. What can I do now?

Answer: Better make it a paid-up policy and take a term policy. You will save a lot of premium and hence you can invest it for long-term in Equity which you provide you much better returns. See the Review of Jeevan Tarang Policy from LIC.

Question 8# Should I hire a Financial Planner? I can read about Financial planning on blogs, through newspapers. I have increased my knowledge to an extent I can take care of myself. What to do?

Answer: It’s great that you have learnt it yourself, you should be able to take care of most of the things by yourself, but most of them will be day to day decisions when it comes to Financial Planning. It takes much more than just that!

Financial Planning is more than “Taking term insurance” or “Choosing some great mutual fund” or “good attitude about saving”

It requires

  • Time
  • Analysis of Current Situation in detail and linking each component with other for best results.
  • In-depth knowledge or at least basic level of knowledge of overall Financial Planning …
  • An attitude of thinking in terms of Financial planning.

It’s not everyone’s job. We all have expertise in some or the other field, we may be okay or good at Financial planning. If your Home electric wires have issues… better call an electrician even though you have learnt some basic Electronics in college and know what needs to be done.

It’s always better to hire an expert and pay him what it deserves. We all are in this world for some reason, better do your own part and let others do theirs.

Note: I am talking about overall Financial Planning and expert advice… taking basic advice can /should be done by yourself.

Question 9# How is an Insurance agent or Wealth/Portfolio Manager different than a Financial planner?

Answer: From decades, Agents and petty advisers with some basic knowledge in a single field claim to be a financial planner. Financial planning is a very different thing than just Insurance Planning or Investment planning.

They are part of Financial Planning and much much more than that. Its like surgery of current situation, trying to find the issues in the current situation, the defective parts of overall Financial life and then correcting those mistakes by linking different parts.

CFP is the standard certification accepted all over the world for Financial Planning; So if you are looking for your Financial planning. Only look for people who are some way related to CFP certifications.

They can either be pursuing it, completed it or have been given CFP certificate. You can also look for any trustworthy person you think have required Skills.

Question 10# But Why to do Financial Planning at all .. I have never done it and I think I am in a good shape .. I don’t see any financial issues with my life.

Answer: It’s an innocent belief. There is time for everything.. wait for 20-30 more years and you will be amazed to see you are so much short of your Retirement corpus. You are still alive, hence you can’t imagine your family Financial situation once you are gone …

Everything shows up later… There are people claiming to be “healthy” and then dying of “Heart Attacks” 2 yrs later .. and young people complaining for “Backaches” in Early 20’s … These are the people who don’t believe in regular checkups…

Just to save few hundreds these people take risk with there health and let it deteriorate to an extent when it’s too late…

There are people who have decided to do their Financial Planning, but they are already in too much mess now… because they have taken those junk Endowment policies long back thinking it will make them rich… once you analyse your Financial Situation by your Future eyes.

You will be amazed to find out how much of restructuring you are doing…

Comments please .. Do you know of any more common question which can find a place here. Which one of these was one of your doubts? Please leave a comment …

What are Income Clubbing Provisions and Tax Implications?

I have invested some money in Fixed Deposit in the name of my wife as she is not earning any income. Will she have to pay tax on this?

This is an innocent questions because of inadequate knowledge of Tax Provisions on Clubbing of Income and how it attracts tax liabilities. Let us see some Must know tax rules for Clubbing of Income.

Income Clubbing Provisions and Tax Implications

Top rules of Clubbing of Income

  • Income of a minor child is added to husband or Wife’s Income depending on whose total income is greater. So if Child earns Rs. 1 Lacs and Wife is earning 5 lacs and Husband is earning 4 lacs, then the income of Child will be added to Wife’s Income and it will be 6 lacs of income for Wife and it will be taxed accordingly. Do you think you can live with 90% of your Salary?
  • If you invest money in your Minor Child’s or Spouse’s name then all the income earned from that investment will be clubbed into your own income. The main thing to note here is whoever is the original owner of money will be taxed on the income.

Exception: Income of a minor child shall not be clubbed and is taxable if the child is suffering from a disability (under Section 80U) such as physical disability, complete blindness or if he earns the income through manual work or any activity involving application of his skills or talent or if both his parents are not alive.

  • The compounded income is not subject to clubbing. Which means that the income arising from the income which is clubbed is not clubbed. So, if Ajay invests 30 Lacs in an FD in his Wife’s Name, suppose the Interest on this FD comes earns Rs. 2.4 Lacs and the interest from this FD will be included in Ajay’s income, but any income which comes from this interest of 2.4 lacs will be considered as his Wife’s income and not Ajay’s income and hence will not be clubbed back to Ajay’s income. So if his Wife uses this Rs. 2.4 lacs and makes an income of 1 lacs from it, then this 1 Lac will not be considered in Ajay’s income. Do you know How to find the Best Fixed deposit?

Some Tips Use can use to save Tax

#1: For High Net Worth Individuals

If you are a High Net worth Individual and your Spouse does not Work, you can make the investment on his/her name. So that the income which comes from the income arisen from that investment is at least not taxed.

Example : If Robert invests 50 Lacs in Stocks and Earns 20 Lacs, It will be considered as His income and Taxed and now if he invests this 20 Lacs in FD, all the Interest he gets is also taxed.

But If he Invests this 50 lacs on his Wife name, the 20 Lacs income generated will be taxed as his income, but then when that 20 lacs is invested in FD, all the interest coming from that will be treated as Wife income and If Wife is not doing anything, Her Total income will just be this interest, around 1.6 Lacs considering 8% interest and hence It will not be taxable at all as its below the limits.

#2 Invest on your would-be-Wife or Son’s-Would-be-Wife name

Tax Clubbing rules do not apply when you invest money on some one’s name before Marriage (only your would-be and Son-would-be, not your-friends-would-be). So Any income earned from that investment will not be clubbed within your Income.

Example : If Manish is going to be married (thanks you guys) and He wants to invest 20 Lacs in an FD . He can do a simple tax trick, He can invest this money on his would-be-wife name.

Now by doing so, all the interest coming from this FD will be considered as his wife Income and if her total income comes under minimum limit, She will not pay any tax on this. Where as If he invest this 20 Lacs on his own name or in his wife name after marriage, The interest will be taxed.

#3 Make sure the Investment on your Child Matures after their 18th Birthday

Clubbing Rules applies only for Minor Child’s, It’s not applicable for Children above 18th. So make sure your Investments on Child Name mature after they are 18th so that any income which arise from it is not your income. Read why you should open a PPF account even if you don’t need it.

Example : So if you have a child aged 12 and you are planning to buy a Bond for 5 yr on this name, It will mature when child is 17 and hence will be taxed in your hand, better extend the Tenure by 1 yr and make it to 6 yr or 6.5 yr, so that The income arised from it is Child income and not taxed in your Hands.

#4 Give a Loan to your Spouse or Child, not a Gift

Clubbing Rules does not apply for genuine Loans Given to your Spouse or Child. So instead of just Gifting some money or Doing investment on their name, give Loan to them which they can use to invest them self. All the income from those investments will not be clubbed in your income.

Make sure that you have a documentary proof of Loan, A simple letter of Loan with Signatures of both the party will be enough as Documentary Proof, no need to run for Lawyers for these.

#5 Create a HUF for Family investments and Family Properties

If you have a Joint or Big enough Family, Its better to Create a HUF, so that then all the investment which are for whole family and all the assets which belong to whole Family are on HUF name, in that case HUF will enjoy all the Deductions and exemptions just like an Individual.

I don’t have much idea about HUF more than this .. so please control yourself before shooting detailed questions on HUF 🙂


Knowing Clubbing of Income rules can help you in saving your Tax in different ways and Without the knowledge you may also loose many times. So better use these Tax rules to make best use of your situation.

Note: There are many exceptions and details in Clubbing Rules which are not covered here. These are just high level rules and not detailed rules. So please handle with Care.

Don’t Judge a mutual fund by its Short Term Performance

“Don’t judge a person by their Sunday appearance” applies to Mutual funds also. Best Mutual funds are the best over most the time frame and Worst mutual funds are the worst performers in most of the time frame.

What I mean by this is that the best performers return wise in 5 yrs, 3 yr and 1 yr are almost at the top and worst performers are always in the bottom for 5 yr, 3 yr and 1 yr time frame. Let us look at the Chart of mutual funds performance

I compiled a list of 78 top mutual funds on the basis of 5 yrs Return and plotted a graph of returns for 5 yrs, 3 yrs and 1 yrs for them accordingly. To smooth out the data, I took a 10 period moving average (i.e. I took an average of Top 10, then an average of 1-11, then 2-12…) Just want to see what is the pattern of Mutual funds list. Have a look below:


If you look at the chart above, you will see that the Best performers (Top 10) were in the best performers list for 3 yrs and 1 yr time frame also. And at the same time, the worst performers in 5 yrs time frame were the worst performers in 3 yrs and 1 yr time frame, whereas the opposite was not true… See this video post on how to choose a good mutual fund for yourself?

Here are the Learning’s and conclusions:

Do not judge a mutual fund by it’s short-term Performance like 1 yr

There were many mutual funds who gave top returns in 1 yr time frame (See the orange line, see all the top positions) but not all of them were the best in 5 yrs time frame. The same thing happened with 3 yrs time frame: there were 2-3 mutual funds at the top in 3 yrs time frame but they were not best in 5 yrs time frame. See why SIP works well in long-term

Short-term performance does not give enough indication of Long-term

This is common sense, just like meeting a person for few hrs or days cannot tell us about his/her nature or behaviour, the same way a mutual fund cannot give a good indication of its long-term perspective from short-term performance.

In the above chart you can see that if I gave you just one year performance chart and it was sorted by returns, you could never tell which amongst the top would also be at top in 5 yrs time frame.

Bad performance in short-term should not be taken too seriously.

This is kind of same thing which I said above, but let’s see it with a different perspective. Short-term performance should not be the only reason for selling your mutual fund or Shares. We generally take our decisions based on short term performance, that is true for Life also.

We need patience and give time to our investments to show its true colors. Good investments happen by giving time to your investments and Early Investing, not just by choosing one.

Comments please, your 4-5 kind words will help me know if you liked it 🙂

Current Situation of Stock market , What should you do now ?

Markets are at their 15 months high. Retail investors are back and I am sure you must have got the left out feeling by now, as stock market have gained more than 100% in last 6 months.

What shall one do now, Shall we invest for long term now, Will markets go up or down. Trading is Probability and hence we shall take our decisions based on probability only. Lets see what are my views on current market conditions.

People who have just started in Stock market should have a look at my “How a beginner should start in Stock Market” Ebook.

Current Situation of Stock Markets

Markets have crossed important levels of 4850 before some days and have been stable there for some days .. Once it crosses 5300, which is another important level, I would be very much bullish then and will be willing to agree that markets can again see the all time high of 6000+ in another 1 yr.

See the chart below.

Source :

Above is a 3 yrs weekly chart of Nifty. If you see the chart below you will see that another important resistance is at 5300 and you can also see some good negative divergence on ADX . This gives an indication that we must be cautious at the moment .. The upside might be limited to 5300, from where it can take a reverse turn.

But, As you must be knowing, markets are supreme and hence if it sustains that level. We will have to obey its order and remain bullish. You should have a look at Deepak Shenoy article on Nifty P/E and EPS growth some days back.

What about Nifty PE?

As of 21st sept 2009, current Nifty PE is at 22.40. Now this kind of number is not show very attractive valuation for long term. Below is the chart of nifty PE for last 3 yrs .. you can see how its has crossed important zone of 20+ and now heading to 25 which I personally consider as “SELL at any cost” level at the moment.

Nifty PE

Even though High nifty PE of 22 does not reflect great valuations, it can be used as short term indicator for catching some momentum move . So I would love to buy right now to get out at 10%-15% profit in another 1 month or so, or till market reverses heavily . But I would not like to make some long term commitments right now at this level, Better wait than never.

So what are the Possibilities

  • Markets can reverse now anytime before touching 5300 levels
  • Markets can sustain 5300 levels and then see 6000+ levels from where it will crash again


This post is just trying to see where we are and not trying to entice you to do trading, trading is a personal activity and can be done in many different ways. Where is will market go is a trivial question, the more important thing is “what will you do when market moves in any direction”

If you have any doubt you can leave your query in our comment section.

Responsibility of any Financial Calculator and its Impact on your Thought Process

I got an opportunity to do a guest post on two very good blogs some days back. One was on How to interpret Warren buffet rules and apply that to trading and another one was how to save for your Future Financial goals.

The response to the second article was more than expected and I had a very good learning experience with some of the readers on those blogs, I would like to share some of the comments with you so that you learn from them and share your ideas about it.

Read more Below.

financial calculator



I am putting some comments I got from the second article, They were very long, fruitful discussion on the separation between “Using a Financial Calculator” and “Influencing your Thoughts”. You can read the comments and actual discussion at the guest blog post itself which would be better for understanding.

Comment from Reader

Still I feel, some where the essence of reality is missing. Not getting convinced with the proportion of earnings and savings.

Eg:- (following the values to be entered in the fields in the tool)
Car – 2015 – 3L needs Rs. 4139 to be saved per month
holiday – 0 – 0 needs Rs. 0 to be saved per month
D’ Education – 2025 – 5L needs Rs. 1909 to be saved per month
Sons Marriage – 0 – 0 needs Rs. 0 to be saved per month
Retirement – 2040 – 10L needs Rs. 864 to be saved per month

Closely, the total amount to be saved per month comes to Rs. 7000.

For a guy earning 30K, to save Rupees 7K with all other expenditure, is not a small thing. To meet his requirements, should be a miser then – no movies (it costs around Rs. 1000 for a family – dad, mom & son to watch a movie ), no luxuries to wife (shopping) and children (say pocket money).

One thing I want to clearly tell you is my intention is not to find the tool as wrong calculator. My intention is to project the scope of the tool to be used by a common man. How a common man will really take the inputs based on the result from the tool and get influenced with.

Yes, it is the person’s personal problem – how to save and how not to; whether to go for saving or not. But it’s the tools responsibility to sustain the thought of saving in the users mind. It just should not be an analyzer or calculator.

It should be more than that. Of course, final decision is left to the user. But my view is, how is that, the tool is going to influence the users thoughts. That influence can lead to change the definition of savings for the user. See GFactor

When a person uses any tool, apart from the direct result, the impact of the tool on the usage also matters. Here, in this case, if the tool scares the user about the saving and if he stops planning for saving (lets just think this can happen for a while) then what is the scope of the usability of this tool.

Once again I am telling, I am not criticizing the tool and its functionality, I was just wondering about the kind of impact it can have on a common man. Coz, Common man never thinks about the logic behind the tool. He and his thoughts will be just carried away with the values. He definitely feels that the tool is misleading him.

Reply from Me

As I said … The tool is a just a giving you values based on the date you provide ..

I saw the numbers you have put in and to achieve these goals comfortably , 7k per month investment is required at any cost . Now if a person earns 30k , then no one can do anything .. Either he forgets some of the goals or earns more ..

There may be many 30k earners and many might be able to save 10k also , and some may not be able to save 1k also .. Now for them Its there personal problem of how to cut their expenses in such a way or optimize the expenses in such a way that their Future goals are also met .See an article on “Can you live with 90% of your Salary ?

Let me know your views on this .. this is an important aspect . Also let me know how is the tool responsible for . As I said earlier the biggest problem is not early investing .. if a person starts investing Earlier , then most of the problems which arise later can be minimized .

Personal Note :

The example you have given

Car – 2015 – 3L needs Rs. 4139 to be saved per month
holiday – 0 – 0 needs Rs. 0 to be saved per month
D’ Education – 2025 – 5L needs Rs. 1909 to be saved per month
Sons Marriage – 0 – 0 needs Rs. 0 to be saved per month
Retirement – 2040 – 10L needs Rs. 864 to be saved per month

1. This example has all the Target dates same as what is was there by default .. I hope you are changing it to your personal Target dates ..

2. Why is Retirement Corpus 10L ? Is it really you think is your Retirement Corpus in 2040 ? By then your Monthly expenses would have increased to 7 times to today :) .

I understood that its not your intention to find fault with calculator, you are trying to say that the tools must have more than what it has right now .. Which is a personal view I think ..

My personal views are different which you may not agree and that’s totally fine ..

I accept that the calculator could have been made more detailed and “influential” with more data in it , putting a “auto0-generated” Suggestions form .. That would be some “work” on my side. . which I will do some day .

However , coming to “Influencing” the thoughts , That is not a small task which will be very easy with a calculator . It takes lots of reading to develop it .. My readers who have been actively reading my articles or other sources are now fully influenced with the idea and now getting good feel of how to develop an attitude towards “;how to save and invest” .

you said “if the tool scares the user about the saving and if he stops planning for saving (lets just think this can happen for a while) then what is the scope of the usability of this tool.”

My views are different .

If a personal can not accept that he needs to save a certain amount based on the numbers he himself gave in the calculator , then he is not accepting the fact that there is some “problem”.

He has to accept this and find solutions for that rather than stop planning for saving altogether .. I agree than it can be disappointing for some one saving just 5k per month and seeing that he needs to invest (not only save) 15k if he wants to achieve his Financial goals (based on whatever info he gave in the calculator) .

He either has to increase his earnings or decrease his expenses or lower his expectations.

Now this reason why he is in this situation is because “most probably”, he is too late in his life planning for things.

At the end, all kind of tools have been made for people who know/can use it. I would like to mention that I assumed that everyone who is reading the article or taking a calculator has that minimal amount of understanding of Financial planning. I guess it was mistake to assume that. I should have mentioned that. Apologies for that.

I would love to hear your views on this. I am not sure if we are on the same ground when putting your ideas, maybe you are trying to say something and I am replying without understanding that thing and hence triggering another “I don’t agree with you” reply.

It may be a communication issue on my part, Let me know if that’s the case. Thanks for this wonderful conversation. at least I have learned too much. Thanks to you.


Special Thanks

Thanks to Barel Karsan and Mohan for letting me blog on their wonderful blogs, The biggest thanks to readers of Mohan who have made this conversation so enriching with their disagreements, Disagreements are the best things in the world, if its missing, there is no learning.

Note: Please no personal Attacks over comments by taking the name of anyone.

Questions and Answers , Part 4

Why should you read answers of other questions? The reason is that there are many questions asked to me which can relate to you also, if not today, maybe later. Hence, Here are a set of 4 questions and answers asked to me on “Ask a question section”.

These questions are on the topics on ULIPs, General Investing and Achieving Financial Goals. You can also look at other Questions and sections part here at Part 1, Part 2 and Part 3

ask a question

Question 1# [ULIPS] – by Shivang Desai

I had invested rs. 1 lakh in sbi ULIP (as wrongly advised by my uncle)in march 2006 when sensex was 12000 now after 4 years worth of it is just 96000 should i withdraw the money or wait longer since the damage of allocation charges and all is already done…or by withdrawing i can allocate this sum in equities or mfs…..what is the right time to withdraw this money


Well you sell your ULIP right now or later does not depend on its current value , You can always buy something else which is going to give you better performance , the fact that you want to sell it at higher price than your buy price is a psychological issue , which every one faces . If the ULIP is bad just sell it and if its good then continue 🙂

I think it would be wise to sell the ULIP and use the proceeds to buy simple mutual funds . One can not guess the right time, but a wise thing would be to wait for a jump in stock markets when you sell it and then buy mutual funds on a drop . Doing this is tough and not easy in itself

If you have a question: Ask Here

Question 2# [General Invsting] – by Sugeet Arora

I am 30. Blessed with daughter 4 months back. Now as the time passing, I am worrying how to secure future of my baby. Where and how to invest. Though I am aware of market fundas.. Still as I am planning for long term, I need an advice.

From research on your site and other places, I concluded that all ULIP scheme are worthless… Rather MF would be a good idea to invest for long term… & what abt equity.. If I rather keep investing in equity and booking profit whenever get chance… What do u suggest ?
Also I wish to use this as tax exemption tool.


Sudeep, you have to understand one thing that you have ample time in your hand, like 20 years, and the savings you have to do is linked to very important thing, your Daughter’s Future, may be Education or Marriage, whatever, now the first thing you have to know is how much you want to generate, 10 lacs, 20 lacs or 50 lacs, this is something you need to do.

After you know how much to generate, the next question is How, Answering it is not tough, its its 20 years, means its long term, and its important too .. so you can mix up Mutual funds and PPF.

So the best thing you can do is to start a SIP in 3-4 good mutual funds and also start a PPF in your and your Daugther name. Keep investing in these instruments and thats it.
I think this should be enough for your requirement. Dont try equity too much unless you really have interest in that and you have enough knowledge to make some thing there. And dont try to time market and find out when to sell and when to buy, its a tough thing.

Just stick to SIP and make sure you review your investments atleast a year and see that its on track, this simple roadmap should easily take u to your destination. If its not simple, its not worth !!

Question 3# [General Invsting] – by Sugeet Arora

Sir, I want to invest 10000-15000 for my newly born daughter. What do you suggest for the same? I am little bit confused in Fixed deposits, RBI relief bonds and Kisan Vikas Patra


Sugeet, I dont approve your decision of investing any money in FD, Bonds or KVP for your daughter. Its totally incorrect.

Why, you must be thinking, the reason is that Its a long term investment for you daughter, If you just invest 15,000 one time for you daughter in these instruments, after 20 yrs, its value will not be more than 40k.

It has no ability to fight inflation and its just eating away the purchasing power. For long term you should be using Equities, like Mutual funds, start a SIP in mutual funds, take a SIP of 1,000 per month in a good Mutual funds and keep on investing in it for next 20 yrs.

SIP in mutual funds is the right decision for you, I am sure you must be concerned with the safety of investments, may be thats the reason why you choose FD and Bonds etc. Equity is risky in short term and in long term its risk decrease over time, for 20 years, I dont think you should be at all worried about it.

Question 4# [Achieving Financial Goals] – by Satya Vyas

I have a question. My monthly take home salary is 2.5lacs. I am 24 years old. I want to invest and invest majorly in equities. My goals are :

1)buy a flat with the max. budget of 18lacs.
2)plan for retirement (age 50)
3)buy a sedan with a budget of 20lacs.

The first and the foremost goal is to buy a house, simultaneously planning for retirement. I need to send around 75k to my parents and another 75k to support my lifestyle per month.

The left 1lac I am planning to invest 70% in equities through MFs and Shares etc and the remaining 30% towards my planning of retirement i.e pension plans SIP, insurance SIPs and other fixed and more stable instruments like gold etc. Also I don’t like to take mortgage for too long maximum 4-5 years for any of the goals.

Please advice me when is the ideal time for me to buy my own house and also is this financial planning in sync with my own objectives or not.


2.5 lacs is great per month salary 🙂 . All your financial goals can be easily met with that kind of money . Let see your goals one by one

a) Your Home: shall not be tough at all .. If you save 1 lac each month , you can buy it in 1.5 yrs . thats the way you should save it.

Don’t put money in mutual funds or shares for this, have a RD for this , or if you can really take some risk, then try some balanced fund for 10-20% part of the money . Also my question is why home for 18 lacs, you can actually take a big enough home for 60-70 lacs and clear the loan in 10 years max. go for that .

b) Plan for retirement (age 50): This is a big enough question and cant be explained in isolation , read my article on 6 steps of Retirement planning . you will get idea on this .. investing 20k per month in SIP would do the job i guess .

c) Sedan: This will depend on when you want to do it , if its a priority , then save more per month , target it in 4-5 years. At last , I must say , if you manage your money well, you can take care of all your financial goals easily soon, I am afraid if you have not taken a 2+ crore term insurance till now, go for it, cover your parents.

At the end, its none of my business, but You should bring down your expenses and lifestyle may be. I am only talking about the part which is unnecessary and can be taken care of. Save now and earn all life.

If you have a question: Ask Here

What is Top-up facility and how to make use of this facility in ULIPS?

I got a query from one reader on ULIP’s top-up facility. The question was

“I have a ICICI pension plan, recently, when thinking about topping it up, ‘i was told that top up attracts only 1%charge, as usual, I didn’t believe the agent n called up call-centre. they also confirmed the same, any idea? whats the catch?

Say, for example, I wanna invest 1 lakh yearly, so I incur 30%charge or 30000rs first year. now instead of that I just take the least possible amount that is,10000/year policy, and later top it up with 90000 every year, this way I end up saving as much as 90%, well, what do you say”. Top-ups are a good way of managing ULIP’s, Read further

ULIP's Top-up facility

Do you know is the most important element in Wealth Creation ? Click here

What are Top-ups facility in ULIPS?

A top up premium is something that a policyholder can invest in his ULIP on top of the existing premium payment. The charges on Top-up premiums are generally very low in the range of 1-3%.

At any time during the policy term, as long as the total of top-up premiums does not cross 25% of the total regular premiums paid till then, you do not need to buy an insurance cover with the top-up premium. So if your ULIP is performing very well, you can top it up with extra premium. See this article to read about ULIP misselling

How to make the best use of TTop-upFacility?

When you buy a Policy, make sure you take the policy for the minimum premium available and then once the policy shows good performance, you can then top it up with extra premiums, there will be some advantage of doing so. Go through This Article by Deepak Shenoy on Top Up facility.

  • Low Charges in initial years (note this will go away after new ULIP rules by IRDA).
  • If your ULIP is performing well, only then you put extra money
  • You pay less charges on premium which is top up

Go through This Article by Deepak Shenoy on Top Up facility.
This is another article you can look for more details on Top up.


Top ups are a tricky tool to make your investments in ULIPs better. Take advantage of ULIPs Top up facility if you are going to take any ULIP product, but make sure you first understand if ULIP is right for you or not?

Which is the Cheapest Bank for Home Loan in Market

Some days back I wrote Review of . One of the readers NKanani tried there Home Loan section to find out best Bank for him and he didn’t get satisfactory results and commented to me

“I checked out the home loan section – it gives me three options – axis bank, ing vysya and deutsche bank… all having interest rates higher than sbi… The calculations are all good, but it would have been better if we could add banks of our interest.”

I contacted personally and got a reply from Chief Product Officer . Read Below

Home loan

Reply from Chief Product Officer , BankBazaar

“Your reader is right in saying that we do not have SBI on our list. Unlike lead generators who list generic rack-rates of all banks, the way works is that we integrate deeply with our partners to enable instant, real time, custom rate quotes from them.

This means BankBazaar users will be able to see offers only from our partners. Right now SBI is not on our partner list. We are however working very hard to onboard them to our marketplace.

Right now Axis is the 2nd largest private sector bank and HDFC Ltd, which is the largest private sector bank for home loans, with over 50% market share will soon be joining our marketplace. We are constantly working on improving our offering and adding more banks to our suite.

Coming to the point on SBI offering the lowest rate, this however is not entirely true. This is a commonly misunderstood rate. Home loan buyers must be completely aware of the long term implications of this teaser rate before taking the decision.

Axis Bank’s home loans are actually cheaper than SBI for loans below Rs. 30 lakhs, and for loans above Rs. 50 lakhs, when you actually calculate the total interest that will be paid out over the course of the loan. To reference this, the calculations of a number of scenarios comparing Axis and SBI’s offers are provided below.

You will notice that SBI’s 8% rate is only valid for the first one year. In the 2nd year, the rate is 8.50% and from the 3rd year on, the rate is 9%. At this point, Axis Bank (8.75% for entire term) is a cheaper option to go with for loans <30l>50L.

Note: All of the above calculations assume that floating index rates will remain unchanged, as it is not possible to predict how they will change. Even if floating rates were to change, the calculations of relative cost above would continue to have value as the floating rates of Axis and SBI would more or less move in concert.

See the Comparision between Axis Bank and SBI for different loan amount HERE

Read how to find the best Fixed deposit for youself


All the results from websites which gives you best result or compare two company work on this Model. So you must do your own finding in detail before taking the result as final Truth.

Key to Excellent Financial Planning is Early Investing

Today’s article is my favorite, Today we will see that what is the biggest secret of Generating Long term Wealth.

Most of the people run after choosing great Mutual fund and choosing right policy, but they do not understand the most important element of Investment Planning, which is Early Investing.

In this article we will discuss how important is Early Investing, We will see that what you contribute early in your Life is what matters the most.

early investing

I did some Excel calculations and found out some important Rules you should remember. All the Examples in this articles assumes 12% or 15% CAGR annual return over long term (30+ yrs). Lets see some Important Ideas you should keep in Mind.

If you are reading this article in Email, you wont see important charts and graphs, make sure you visit the blog for this particular post. thanks

The amount you invest does not increase drastically when you cut your Tenure by huge Margin.

What I mean to say here is that if you have a goal of generating a fixed amount at the end of a long period like 30 yrs and If there are two cases

  • Case 1 : You invest amount A per month for 10 yrs and then let it grow for next 20 yrs .
  • Case 2 : You invest amount B per month for all 30 years .

In this case amount A will be too big compared to amount B. It would definitely be more, not by great extent. Lets take an example. If you want to generate a corpus of 2 crores in 30 yrs and you assume a return of 12% annually.

You need to invest Rs.5666 per month to achieve this target if you can invest for whole 30 yrs. But what if you want to invest only for 20 yrs or 15 yrs? In that case how much money you need to invest per month?

The answer is Rs.6065 (20 yrs) and Rs.6611 (15 yrs). So you can see that the monthly contribution required to meet the same goal does not increase drastically even if you reduce the tenure by 10 or 15 yrs. See the chart below (Click to Enlarge)

The Tenure and amount required are :

30 yrs : 5666
25 yrs : 5801
20 yrs : 6065
15 yrs : 6611
10 yrs : 7903

In the above chart you can see how “Monthly Contribution Required” increase at very small amount if you want to save the investing years later in your Life . Download this Monthly Contribution Calculator to calculate how much you need to invest monthly for your Financial Goals.

Even if you cut your Contribution at the end of the Tenure, It wont affect the final Corpus Drastically.

What this means is that If you want to invest for long term and in case you are not able to invest for many years at the end, the final amount generated will not be drastically less .. The difference will not be worth a concern.

Lets see an example, If you want to invest Rs.4000 per month for next 30 yrs (retirement amount, see 6 steps of Retirement Planning) and you assume 15% annual CAGR return, you would be able to generate a corpus would be 2.8 crores, But in case you just invest for 20 yrs and don’t invest for rest 10 yrs, in that case your corpus will still be 2.69 crores, 96% of the original amount.

If you invest for 10 yrs and don’t do anything for 20 yrs, still you will be left with 2.19 crores. You can see that how your corpus is not getting affected a lot because of laziness in investing.

If you are successful in early investing, your 90% job is done, even if you are not able to invest money in later years, your final amount will not be affected a lot.

See the chart Below (Click to Enlarge). See this Video to understand the CAGR or Annuity Calculation, Or see this Article if you are on Slow Bandwidth.

If you see the chart above, you can clearly see that in the first 15 yrs, the total corpus at the end does not decrease with great rate. Its more than 2 crores even if you miss 22 yrs (thats more than 70% of total tenure).

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Investments Done in Initial years are the main chunk of your Final Corpus

What this means is that what you in the start has major chunk in your final corpus , the money you invest at the end generally has no major contribution because the money compounding has done its work on the money you invested in the start , not end .

See the chart below . .

The time frame of this example is 30 yrs investment with assumption of 12% annual CAGR return. You can see two kind of lines here. Blue Line shows contribution of a particular year in the final corpus and Red line shows cumulative share of years till then in the final corpus.

If you see the chart and concentrate on 6th yr, you will realize that what ever you invested till 6th yrs contributes to 52% share of your Final corpus which means that if you stop at 6th year, you will still be able to make 52% of original amount.

You can also see that last 12 yrs contribution helps in 10% of final corpus, this we saw in the first chart itself.

So at the end, lets see some numerical facts which will help us understand power of early investing.

  • “Investing 1500 per month for 10 yrs and letting it grow for next 20 yrs” will generate more than “Investing 1000 per month for 30 yrs” @12% return.
  • “If your Original time frame was 30 yrs and later you want to cut your Tenure by 50% , you corpus will decrease just by 14%” @12% return .
  • A : “Investing 5000 per month for 30 yrs” B : “Investing 6,000 per month for 15 yrs and do nothing for next 15 yrs” C : “Investing 11,000 per month for just 5 yrs and do nothing for next 25 yrs” Here, C will make 1.95 crores.

If you are a young person below 25 and you have 35 yrs in your hand and want to make 5 crores, If you start right now, you will have to invest just Rs.3,400 per month, But if you are later by 10 yrs, then you will have to invest more than 15,000 per month to achieve same target.

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Start Early, The secret of Sound Financial Planning is Early Investing, not making excellent return or choosing great funds or buying multibagger stocks. If you can take little pain and invest more money now, then better do it, It will save you from lot of trouble later.

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Please put your comment and let me know how was the article and if you liked it? What do you think that early investing is not the most important element of Investment planning, if not, what other thing do you think is the Key 🙂

Understanding Demat and Trading account relationship

Some of the beginners to online stock trading do not understand relationship between Share Trading account and Demat Account . In this short article lets see the relationship between Demat account , Trading Account and your Bank Account . We will also see how many trading or Demat account you can have in total .

Work Flow

Below is a short chart where I have tried to give the flow when you buy a share . click to Enlarge

Demat Account : Account where your Shares are stored in electronic form .

Trading Account : An account which is used to place orders for Buying and Selling of shares .

So Trading account is an interface between your Bank account and your Demat account , when you buy something , Trading account takes money from your Bank Account (Its already taken from your Bank account and saved in Trading account) and buys shares and stores it in your Demat account . When you Sell something , Your trading account takes back the shares from your Demat account and Sells them in Stock Market and get back the money and that goes back to your Bank account (actually you manually transfer it to Bank account from Trading account most of the times .

Question : Does any one know maximum how many demat account can one open ?


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