Difference between Financial planning and wealth management

WHAT IS WEALTH MANAGEMENT

As the name suggests, wealth management is all about managing one’s wealth. This predominantly deals with preservation of wealth and further accumulation. As part of wealth management, investors often actively try to identify and take advantage of profit-making opportunities.
Financial planning and wealth management are inherently very similar. Yet, there are some key differences.

DIFFERENCE BETWEEN FINANCIAL PLANNING AND WEALTH MANAGEMENT

The biggest difference is that you already need to be wealthy to ‘manage’ your assets. Financial planning, on the other hand, is even for those who aim to amass wealth.Financial planning, thus, is required by everybody, whatever your financial goals may be.

EDUCATION PHASE: 

This is the phase in which you gain knowledge and education about investment, but you may not have a lot of financial wealth. So, no wealth management is required. However, even at this time, you will have to do financial planning to make the best use of your money.

In such a case, financial planning includes decisions regarding how much to save for your daily expenses as well as investments, how much loan can be taken, how it will be paid off etc.

RETIREMENT PHASE: 

In this phase, if individuals have accumulated wealth already, then wealth management is required. But, if they do not have large financial wealth, then it is not required.

On the other hand, financial planning is still required with decisions relating to investment planning (where to invest money) and estate planning (how to transfer real estate assets).

ACCUMULATION PHASE: 

This is the phase in which you start enacting your strategy and accumulating financial wealth. Here, wealth management may not be required at the start, but may be needed at later stages once a significant amount of assets are accumulated. Financial planning, however, is required even at this stage. Planning involves re-evaluating your strategy and changing it if required.

Decisions in this phase will be related to accumulation of financial wealth, calculating how much to spend now and how much to accumulate for future spending etc.

Source(Kotak Securities)

Panama Papers

 These days and the word “papers” quickly comes to mind. Too bad. I recently visited this small Central American country and saw firsthand what is largely unknown: Panama is a huge economic success story, enjoying an average annual growth rate that’s about the best in the world in the 21st century. Things have “slowed” recently: Growth last year was a tad below 6% but is expected to be a bit above 6% this year. Unlike the numbers coming out of China these days, which are ostensibly slightly higher, Panama’s are the real deal. Its growth is still light-years ahead of that in most of the world’s countries.Panama is no sleazy money-laundering backwater. Quite the opposite. 

Panama City is becoming the financial center of Latin America, with scores of global and Latin-American financial institutions having a sizable presence there. The country has made considerable progress in transparency. The multigovernment Financial Action Task Force on money laundering removed Panama from its gray list this year. In 2012 it was taken off the OECD’s blacklist of tax havens. Panama is implementing other reforms, such as doing away with anonymous shareholder certificates, and expects to be in compliance with OECD transparency standards by 2018.

The government recently floated a $1.2 billion bond issue, which was quickly oversubscribed. Government debt to GDP is only 40%; in the U.S. it’s over 100%.The number of containers moving through this historic byway in 1993 was 267,000. Today there are well over 6 million, and with the opening of a third set of locks in June, which will enable the canal to handle today’s megaships, that number should surge to well over 12 million. The resultant growing volume of trade has meant that government revenues from the canal have also grown nicely.

Almost a decade ago Panama enacted what is called Law 41, which offered considerable incentives to any major company making Panama its regional headquarters for Latin America. More than 100 multinationals, such as Procter & Gamble, have done so. Among the enticements is that their employees pay no Panamanian income taxes.Panama has been attentive to building the necessary infrastructure to support all of this expansion. Construction of a major monorail is under way, and a new convention center to handle such “business tourism” as conferences and exhibitions is near completion

Ways to Beat inflation

A penny saved is a penny earned. But thanks to inflation, over time, the value of the penny saved could be much less than when it was earned. One cannot ignore the corrosive impact of rising prices on investments."When looking at investement always focus on what is the real return or the return net of inflation,"

INVEST IN EQUITIES/EQUITY MUTUAL FUND:Investing in equities over a long period is one of the best ways to stay ahead of inflation. Over the last 10 years, the Nifty has returned 16.7% a year compared to the 7% average inflation rate. One can either invest directly or through mutual funds. For small investors, it is advisable to invest through mutual funds, as they are managed by experts.Another way of lowering the overall risk is investing via systematic investment plans or SIPs. The compounding impact of such investments over long periods will help you beat inflation by a comfortable margin.

INVEST IN DIVIDEND-PAYING STOCKS:

One good way of staying ahead of inflation is buying stocks that pay good dividends. Interest rate offered by banks is usually much less than the inflation rate.Just like inflation, dividends, too, can be calculated annually. This figure, called the dividend yield, can be measured by adding dividends received during the year and dividing it by the stock price. The yield must be higher than the annual inflation rate.

ASSETS LIKE GOLD AND REAL ESTATE:

Gold is considered an ideal hedge against inflation. Market experts say real estate can also be an option if one can afford to spend a big sum. However, only a small part of your portfolio should be allocated of these options.

DIVERSIFY GEOGRAPHICALLY:

Asset allocation is critical. In this, one can look at an opportunity is to diversify globally. This will make your portfolio more stable and less vulnerable to domestic volatility and inflation.

INFLATION-INDEXED BONDS:

These bonds are a great way to beat inflation as they are designed to protect both principal and interest.The principal is indexed to inflation and, hence, IIBs safeguard principal from inflation,"Inflation index bonds are widely available securities in the developed markets that offer inflation protection to retail customers."

RE-ALIGN YOUR PORTFOLIO 

During periods of volatility and high inflation, it is imperative for an investor to her asset allocationtaking into consideration risk, times horizon and goals. At the same time, it is equally important for an investor to take a long-term view so that his reaction to developments in the market is not knee-jerk.

Source(Money today)

Pharma Stocks

Pharma stocks available on a lottery

Indian pharma exports stands at $17 billion at present and grew 9.4 per cent in 2015-16, said a report. The domestic pharma industry exports $12.7 billion worth of pharma goods in the generic category, which is 5.8 per cent of the overall global generic market . The Nifty Pharma index has already corrected about 7 per cent so far in 2016 weighed down largely by concerns over regulatory hurdles, expensive valuations, falling volume and USFDA concerns, which have capped the upside for the sector.

The pharma industry grew 6.4 per cent in March, the slowest growth this financial year . Market experts say there is big potential in the pharma space for those with a long-term view. "I am bullish on pharma... Indian pharma supplies 40 per cent of American generics and 7 per cent value." 

Latest data showed there have been over 400 observations on Indian pharma from the USFDA over the past 12 months. "USFDA is a temporary problem. You must not read into anything in the sense that if the importance of size and importance of Indian pharma is growing, they also need to gear up to the required standards of the US.

"Indian generics have no global alternatives for the long term. I see a sign of maturity scaling up in Indian pharma. Most pharma companies can throw up wonderful opportunities for investors to buy these stocks 30-40 per cent cheaper if you have faith in them. The business opportunity is beyond doubt because the world needs generics." 

Source(Economic Times)

Should you invest your money or use it to prepay home loan?

The first variable to be considered is psyche: some people may not be comfortable with a large housing loan and to reduce their stress they may want to get rid of the loan burden at the earliest. For them, settling the question of how to use their bonus is simple: just pay off the loan. "You should pay off the home loan at the earliest. Several unfortunate happenings— job loss, death of the earning member, serious illness, etc—can cause trouble during the 10-15 year loan period. Treat it as a mind game and not a numbers game. 

Tax benefit is the next variable. The principal component of the EMI is treated as investment under Section 80C. The interest component is also deducted from your taxable income under Section 24. The annual deduction in respect of the interest component of a housing loan, for a self occupied house, is limited to Rs 2 lakh per annum. You won't be able to claim deduction on interest paid above Rs 2 lakh. So, if your annual interest outgo is higher than Rs 2 lakh, it makes sense to prepay the loan, and save on future interest payment. however, optimise the tax benefits if the loan has been taken jointly, say, with your spouse. "If joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction," In case of joint holders, there is no need to prepay if the outstanding amount is less than Rs 40 lakh.

The third key variable is returns from investment of the lump sum at hand. As a thumb rule, you should go for investment, instead of prepayment, only when the post-tax return from the investment is likely to be higher than the effective cost of the housing loan. For investors in the 30% tax bracket, and whose outstanding home loan balance is less than Rs 20 lakh, the effective cost of loan is only 6.65%. Since there are several risk-free, tax-free debt options such as PPF, Sukanya Samruddhi Yojana.

All the debt products mentioned above are long-duration products. If your risk-taking ability is higher and time horizon is longer, you can consider investing in equities, which can generate better returns "It's sensible for long-term investors (five year-plus holding period) to go for equities, provided they are savvy and understand the risks involved there," There are some home loan products that provide an overdraft facility of sorts and help you maintain liquidity. All you have to do is to park the surplus money in these products and not bother with whether it's a prepayment or not. It's like prepayment with the option of taking out that money, in case you need it in future for personal use or for investment purpose. The strategy of maintaining the housing loan interest close to Rs 2 lakh per annum can also be managed by these special loan product .

Source(Economic Times)

What does the PE ratio tell you about a mutual fund?

Investors tend to attach much importance to the price-to-earnings (PE) ratio and market capitalisation of a stock while buying. When used in conjunction with other metrics, these numbers can help in picking the right stock at the right time. But can they also help select the right mutual funds? You may find it difficult to ascertain the investing style and preferences of the fund manager only by looking at the fund portfolio. This is where the fund's PE ratio and average market capitalisation become good reference points .

It is the average of the PE of all the stocks that make up the fund's portfolio, in proportion to their allocation within the portfolio. A high portfolio PE would indicate that the scheme mostly holds stocks that are quoting a valuation premium. This indicates a preference for growth oriented businesses. In a growth based approach, the fund manager does not shy away from paying a high price for stocks that are exhibiting healthy growth in profitability.Growth oriented funds tend to exhibit strong returns within a short span of time but are more volatile. Value conscious funds typically yield great results over a longer period of time and come with lesser volatility in returns.

"If a mid-cap fund is carrying a lower market capitalisation than its peers, it suggests the fund manager has dug deeper into mid-and-small cap universe of stocks and is indicative of higher level of aggression." Similarly, a large-cap fund with a much higher average market capitalisation relative to peers implies the fund is more of a pure-play large-cap fund. 

A higher average market capitalisation within the mid-cap funds category would suggest the fund manager's preference for nascent large-caps rather than pure mid-caps, while a lower valuation would imply a value-driven strategy. The Franklin India Prima Fund, for instance, has a market capitalisation closer to its category average but a lower PE, suggesting a valuation conscious approach.

Source(ET Wealth)

What stops women from investing?

Today, women are outpacing men in several areas. Surprisingly, investing is one area which still provides fertile ground for studying gender differences. On the face of it, this field should be gender agnostic as it does not involve physical exertion or spending long hours in office, both considered limitations for women. However, there are some differences in the manner in which the two genders approach investment. 

The apparent lack of interest in India is rooted in societal mores. The division of labour, wherein man provides and woman nurtures, is evident even in the most progressive urban households. Investing is seen as a male domain. Even when the woman earns a sizeable income, it is often agreed that her income will be used for household expenses and man's for investments. 

Besides, men are often not very forthcoming about investments. Any question posed by the spouse is viewed as an irritant and most women give up after some time. Even if a woman acquires knowledge, she does not take the next step of investing. This may be the reason some investment options are overwhelmingly dominated by men. 

How to encourage women

Raise awareness: First, we should make women aware that they possess certain traits which are naturally suited to investing. They are less impulsive and more inclined to step back and reflect. This makes them better investors compared with men. 

Start young: Exams such as the National Financial Literacy Assessment test (N-FLAT) should be made mandatory for all students between the ages of 13 and 16. This will introduce the concepts of finance and investing. The exam results are unimportant. What matters is jettisoning the fear of 'investing'. The Financial Planning Standards Board of India could devise programmes for them.

 

Difference between speculating and investing: This is more pertinent when it comes to stock markets and equity mutual funds, which are often perceived as dens of speculation. This should help women understand the perils of inflation and effects of taxation, how safe investments are not as safe simply because they may not help you attain financial goals. 

Source(ET Wealth)