Friday, June 25, 2010

Planning for your Child's Education

The expenses of children’s education are getting higher everyday, and the earlier you start planning for your children’s educational funding, the more alternatives you will have for their future.

Even if the kids are grown-up it’s never overdue to take some steps to guarantee that your child’s educational expenditures are covered for the future. If you are having life insurance policies, see that it also takes your kid’s education into account. According to financial specialists, next to purchasing a house, children’s schooling is the biggest expense you’ll ever face. Thus, it is better to plan things as early as possible.

Before planning for your child’s education, you should have an excellent idea of the various costs that may have to face. The key thing is to not underrate what stuffs will cost, because a funding shortfall in the future could give you problems.

Giving your child private education, is clearly a huge financial obligation and one that needs a lot of financial planning. Your kid may have to take an Education Student Loan in the future. And the overall expenditure of a complete private school learning that is followed by college could be expensive. School boarding may even cost more. The expenses depend on the school so it is a fine idea to research on prices in your locality if this is a choice you want. It is also a good idea to consider how the prices have climbed each year; this will help you to make economic projections.

Even if you don’t like to give private education for your kid, still there are costs related to state schooling. Also, it is better to plan for these expenses now rather than wait for a later time, thereby evading a large part of your profits being gulped up when the time arrives. Costs will comprise of uniforms, excursions field trips, and maybe holiday childcare.

The costs of higher education has now hit an all time high. Finance packages are available to assist learners fund their college education. Nevertheless, a lot of parents are anxious about their kids falling in financial obligation at a youthful age and would rather put aside savings in advance. Campuses can charge heavy amounts in coaching fees. Apart from this you have maintenance and accommodation costs as well.

After you get a picture of the kind of educational opportunity you would like your kid to have, you can begin studying the best savings tactics. There are various alternatives; the one you pick should be based on factors like the time you have, your income, and the amount you like to save.

It is advisable to spend some time for exploring all the alternatives at this juncture. You can also get advice and help from a financial consultant. Once your financial plan is ready, you will have peace of mind about your kid’s education.

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Thursday, June 24, 2010

Retirement Planning Options

Launching a retirement plan is not as tough as people assume it to be. Besides, there are various retirement plans that offer tax benefits to both employees and employers. Some guys even invest online for their retirement period. Nevertheless here are some retirement plans that you can go for.

Payroll-Deduction IRA

If a company doesn’t want to go for retirement plans, still it can allow its workers to donate to IRA using payroll deductions, offering a straight and simple method for qualified workers to save.

SARSEP (Salary Reduction Simplified Employee Pension)

A SEP setup before 1997, a SARSEP is that which comprises of a salary cutback deal. As this plan is a basic one, the managerial expenses should be lesser than what would be for more intricate plans. Here, as an alternative to setting up a new retirement plan, companies contribute to IRAs of workers and their own IRA, subject to some percentages of dollar limits and pay.

SEP (Simplified Employee Pension)

Simplified Employee Pensions offers a simplified way for workers to contribute for a retirement plan. Instead of setting up a money purchase or profit sharing plan with a trust, companies can use a SEP agreement & contribute straight to a personal retirement account or a personal retirement annuity set up for every entitled worker.

Simple IRA Plan

These are Tax favored plans that some small companies can arrange for their workers, a Simple IRA plan is a written salary decrease accord between worker and company that permits the worker, if qualified, to decide on having the company to pay salary reductions to a SIMPLE IRA on behalf of the workers.

401(k) Plan

This is a type of defined contribution plan, which allows worker salary deferrals and/or company contributions.

Simple 401(k) Plan

This one is a type of defined contribution plan for small business owners having 100 or lesser workers. In this plan, a worker can elect to put off some of the compensation. Contrasting to a standard 401(k) plan, here the company must either make: (1) a corresponding payment up to 3% of every worker’s salary, or (2) a 2% non elective contribution of every eligible worker's salary.

If you have a bad credit mortgage, you should consider that as well and adjust your retirement plans accordingly.

403(b) Tax Sheltered Annuity Plan

This is an annuity plan for certain colleges, public schools, universities, public hospitals, churches, and charitable bodies that are exempt from tax under the IRC section 501(c)(3).

Defined Benefit Plan

This is a type that is financed primarily by the company and whose expense is verified actuarially.

Money Purchase Plan

This one is a type of defined contribution plan in which employer contributions are fixed.

Profit Sharing Plan

This is a defined contribution plan that permits optional yearly company contributions.

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How To Budget?

Proper budgeting can help you save a lot of problems in the future. Here are some tips for doing your budget right.

You'll possibly find it useful to track your current expenditures first. You can review latest bank statements of yours, and then keep track of every dime that you pay out for the subsequent few days. The budget that you prepare will depend on various factors, together with what place you are living in. You can use professional help for this, but you should beware of various rip-offs including credit report scam.

Maybe the 60% Solution is the easiest way to budget. The idea here is that every essential spending, like food, clothing, shelter, etc, arrives out of the opening 60% of your whole, pretax income. All the remaining, in 10% amounts, is dedicated to short-range savings, retirement savings, amusement money, and the like.

There are various ways to keep debts from causing mayhem on your financial plan. To start with, think about consolidating your loan to lock in low rates. Also you can talk to your lender about other alternatives. If you are facing crisis, you can request for a deferral, however keep in mind that your interest will keep accumulating. That’s why it is better to shell out something every month.

However, that is not the case with credit card debt. You constantly want to pay more than the bare minimum. Or else, the interest charges keep piling up. If you can't pay the minimums, think about contacting Consumer Credit Consultants in your neighborhood.

Congratulations if everything goes fine. The budget you made will help avoid potential debts in the future.

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India's first online weekly on Personal Finance

Screenshot of RupeeManager on Twitpic

Screenshot of RupeeManager on Twitpic

My Other Blog

India's first online weekly on Personal Finance

Wednesday, June 2, 2010

All About Portfolio Management Services (PMS)

From the DNA
A few days back, I was consulted by a friend on two portfolio management services (PMS) products. One was what is termed a quant-based PMS, while the other had no definite asset allocation, though it claimed to be an equity PMS. As I studied the products, I realised a few home truths about the category:

l PMS is supposed to be meant for high net-worth individuals (HNIs). By definition, this is supposed to imply that from an asset allocation perspective, only that portion of investible surplus allocated to high-risk categories needs be invested in this. However, the minimum investment amount permitted by Sebi is Rs 5 lakh (which, according to many, is too low and will not restrict it to HNIs)

l PMS is meant to provide a lot more freedom to both investors as well as fund managers with wider objectives. This is in sharp contrast to more conservative approaches adopted by mutual-fund managers

l Sebi does not regulate PMS as tightly as mutual funds with regard to disclosures and other standard requirements

l Sebi also does not specify charges that can be levied by PMS providers. It expects customers to exercise their discretion in entering into agreements with service providers

Thus, it is quite apparent that the entire spirit of the PMS is one of freedom for both the investor and the portfolio manager and that it pre-supposes a high degree of financial knowledge on the part of the investor. It is not a product for the risk averse, nor is it for those who cannot strike a good bargain with the service providers. Knowledge of the market and access to information will be very useful for an investor to make the most of a PMS.

However, the PMS is not being pitched as a product to those who have the extra cash. It is now being sold as a product similar to a mutual fund.

The product seems to have become the toast of financial advisers and distributors. It isn't hard to see why — at a time when selling mutual fund schemes has become less lucrative, the lure of the higher upfront commissions on PMS products seems too tough to resist.

In August 2008, Sebi came out with PMS regulations with the intention that portfolio managers should manage PMS activities in a manner which does not partake the character of a mutual fund. Whether this is indeed the case, is a matter of debate.
So if you have decided that PMS is for you, find below a primer to help you make a good decision:
l Check the past performance of the fund manager against the stated benchmark. (Unfortunately, I could not find any performance details on websites of service providers). This should be available on request. Demand the same from your distributor

l The service is likely to have upfront fees along with annual management fees with or without a profit-sharing arrangement. Compare this and understand the net yield in various return scenarios

l Expenses in PMS are bound to be higher than those in mutual funds, as Sebi does not permit pooling and the portfolio churn rate is high. Compare this with expenses of equity mutual funds (1.75-2.5% pa for diversified funds and 0.75-1.5% pa for index funds)

l PMS is also likely to have an incidence of higher taxes since short term capital gains will apply for sale of shares by portfolio managers despite the investor staying invested. Hence there could also be a lot of paperwork involved

l A PMS can be either discretionary or non-discretionary in nature. Under non-discretionary PMS, the portfolio manager makes recommendations to the client and investment decisions are at the client's discretion while under the discretionary service, the portfolio manager has a greater degree of freedom and can take investment decisions without explicit approval from the client.
Choose what suits your knowledge and on how much you wish to control the portfolio

If you are ready to step into this world, please do so carefully and as they say in Catholic wedding services, "It is therefore, not to be entered into unadvisedly, but reverently, discreetly and in the fear of God".


Posted via email from Ranjan's posterous