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Neeraj Chauhan is a Certified Financial Planner and CEO of The Financial Mall. The Financial Mall is a financial supermarket & in operation for over 20 years. It manages total financial affairs of clients through wealth management and financial planning Process.

Thursday, September 22, 2011

Good Credit: Teach Your Children Well

Many parents teach their children the ABCs at a very young age, but do they teach them the ABCs of good credit early enough in life? In some cases, probably not.

At certain points in life, everyone will have to deal with banks, loans, credit and finances. You may have learned your lessons through the “school of hard knocks,” and with your insight and experience, you may be able to help your children steer clear of some of the headaches you have encountered.

The three C’s of good credit

It is essential to teach your children the importance of capacity, collateral and character. When issuing a loan, a bank may consider how the applicant measures in each category.

Capacity poses the question: “What financial resources do you have to pay back the loan?” As the creditor, the bank most likely will ask, “How long have you held your job? How much do you earn? How many dependents do you have, and do you pay child support?”

Collateral concerns what the applicant will use to secure the loan. For example, a creditor may want to know if your child owns a car or has any personal savings that can be used as a pledge against the loan. When your child pledges an asset as collateral, he or she is promising to use the asset for repayment if, for any reason, he or she is unable to pay the balance of the loan. Personal loans generally do not require collateral, but come at a higher interest rate.

Character is what a creditor will use to determine the reliability of a loan applicant. The creditor may consider such points as how long an applicant has owned a car or home, or whether the applicant pays his or her rent and other loans or bills on time.

Establishing a good credit record

It is often difficult for a young person to establish good credit, because they have no previous track record of paying bills or making loan payments. Lacking a credit history makes securing a first loan difficult, and yet, without that first loan your child can’t establish a good credit record. As a parent, you can help your child take the first step toward attaining credit by helping them  open a checking and/or savings account. A creditor will look at such accounts as an ability to manage money.

Another step on the road to good credit would be for you to co-sign a loan application for your young adult child. As a co-signer, you are agreeing to pay back the loan in the event that your child fails to do so. Therefore, communication and trust between you and your child is paramount to ensure payment will be made by your child.

Maintaining a good credit record

There is only one way to keep a good credit record: Pay everything off on time! Make sure your children are aware of how much they owe at all times. In addition, try to have your children avoid owing more than can be paid back. Advise your children not to dig holes so deep they won’t be able to climb back out.

If you take the time to teach your children these basic concepts, they will have a solid foundation to help them avoid the pitfalls that many young people face when they begin to build their credit foundation.

Monday, September 12, 2011

Going to a gynaecologist for treatment of angina pain??

What would happen if you land up to a gynecologist for a treatment of Angina Pain? I know this could be laughing statement for many but people in rural India still doing the same.

Very valid argument in favour of this action is both are Doctors and qualified in medicine practice so they can definitely handle the patient but the question is about their expertise. So is a case with money management or the financial health.

Investors often do self-diagnosis and self-medication when it comes to their financial health or they approach vendors (so called agent, distributors) to have prescription for the financial ailment. Is it not similar to approaching a chemist or druggist for health problem?

The role is different yet important of all the professionals in this whole financial or health management. Financial Planners writes a Financial Plan after analysing your financial health, Agents or Distributors provides you the products suggested by the planner, wealth manager or portfolio manager manages your money to increase the ROI, Chartered Accountants helps you to minimise your taxation legitimately with guidance to various tax laws and procedures.

All these and other similar looking professional designations are quite different in their nature of job and hence the title of this posts too. Thus, I am jotting a few of the closest ones and differentiating between them in following paragraphs for better understanding of our audience:

Insurance agents are individuals licensed by IRDA to sell life and health and/ or property and casualty insurance products. Many financial planners are also licensed to sell or give advice on insurance products. Other financial planners might identify insurance needs for a client, but turn them to a licensed insurance agent for recommendations about which existing insurance products best meet the client’s needs. Independent insurance brokers sell products for two or more insurance companies, Individual insurance agents represent only one.

Portfolio managers typically design a portfolio for clients (or work with a design developed by a financial planner) comprising individual securities, bonds, real estate or other financial assets and investments, and manage the portfolio on a discretionary basis, usually for a fee that is a small percentage of the value of the assets under management or sharing the profits after a hurdle rate.

Distributor is a company or individual that sells mutual funds units on behalf of the Asset management Company. A third-party distributor receives a portion of the loads (or sales fees) that the mutual funds charge unit holders or distributor charges fees for their services.

Chartered Accountants provide trustworthy information about financial records. This might involve them in financial reporting, taxation, auditing, forensic accounting, corporate finance, business recovery and insolvency, or accounting systems and processes. Generally, they play a strategic role by providing professional advice on taxation and legality.
Stock Broker is a regulated professional broker who buys and sells shares and other securities through stock exchanges or Agency Only Firms on behalf of investors. A broker may be employed by a brokerage firm.
Certified Financial planner is a practicing professional who helps people deal with various personal financial issues through proper planning, which includes but is not limited to these major areas: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).
The work engaged in by this professional is commonly known as personal financial planning. In carrying out the planning function, he is guided by the financial planning process to create a financial plan; a detailed strategy tailored to a client's specific situation, for meeting a client's specific goals. The key defining aspect of what the financial planner does is that he considers all questions, information and advice as it impacts and is impacted by the entire financial and life situation of the client.

Thursday, September 8, 2011

Will glittering gold glitter more??

Over last six years Indian women’s have their laughs and points proved of their investment decisions in gold (though they bought jewellery) Good part is husband is not complaining either this time. In a country where women love yellow metal more than anything now has got a reason to buy more but poor husbands are in dilemma.

The questions come to mind is “Will gold continue to glitter”

 Around the world, investors prefer to buy gold, especially during these days of tough economy. Although there was a temporary dip in the price of gold in 2008 due to recession, demand for gold has been steadily increasing. Is this a unique phenomenon of the United States dollar, or is it an international phenomenon since it involves the major currencies of the world?

Asian countries which are growing in economy invest in gold more than the westerners. India and China are growing as big consumers of gold market. Demand for gold is increasing in India by leaps and bounds. Statistics say that the Indians buy about 25% of the world’s gold, purchasing approximately 800 tons of gold every year, mostly for jewellery.

For Indians and most other Asian people, Gold has been the symbol of power, strength, wealth, warmth, happiness, love, hope, optimism, intelligence, justice, balance, perfection, summer, harvest and fertility.
Important reasons why people go for gold investment and what factors contribute to it’s rising prices:
1.      Gold behaves more like an international currency than a commodity
The primary reason for gold investment is that gold behaves more like a currency than a commodity. Commodity prices change horribly in correlation with crisis in society. But change in gold price is low in correlation with other commodities.

2.      Impact of Inflation:

During inflation when the value of the currency decreases, the price of gold shoots upwards. The actual rate of inflation can differ significantly from inflationary expectations. However, the movement of gold is related to both these figures equally. So, even if the figures do not show marked increase in inflation, expectations can cause gold to stay up.
It is expected that the inflation seen in India and China will offset the deflation in the United States. Deflation means federal interest rates will remain low and this will again contribute to the growth of gold prices. This means that as long as the dollar stays weak, gold will continue to peak in 2011.
3.      Gold as a deciding factor
When the price of gold moves upward in multiple currencies, including dollar, investors worldwide have to take resort in gold since they find yellow metal as a better way to hedge their economic futures against a decline in the purchasing power of their own currencies.
4.      Demand for saving
People go for gold as a means of saving or investment whenever there is an economic crisis. Like any other commodity the price goes up when there is greater demand. So also when there is a great demand as well as speculation for gold automatically its price goes up. But the difference with gold is that unlike most other commodities saving and disposal plays a larger role in affecting its demand and price than its consumption.
5.      Constant Turmoil in US and European Markets and natural calamities like Tsunami in Japan
Political and economic events in the world play an important role in the rise in gold prices in global markets, as happened in the Asian markets and early in this century, when gold prices rose by more than 25% compared to last year.
6.      Rise in demand of gold due to ETFs
Gold ETFs have come into play in recent times which are giving gold buying power in the hands of common masses. Anybody with a DMAT account can easily buy gold in as less as Rs.500 in form of gold certificates. This helps people in buying gold with low amounts too and be able to accumulate gold in their portfolio without any upper limits.
7.      The high cost of gold mining and the lack of large mines in recent years have also led to rise in gold prices.

Circumstances in Which Gold Prices May Crash

Over the course of history, rapid rises in the prices of commodities have eventually crashed just as suddenly. Ten years is seen as a good run and many anxiously look for signs that the gold bubble is about to burst. To a certain extent, the hype created about gold is responsible for the steep price increase. Hence, the moment the hype dies down, prices will also fall. The 'safe-haven' appeal of gold is also fast decreasing in the wake of the weakness it displayed in times of recent turmoil.
The dollar will not stay weak forever and as soon as it strengthens, gold prices will move inversely.
Thus, it would be a safe bet to say that it’s best to balance one’s investments in various asset classes with maximum cap of 10-15% in gold (including jewellery).
One should stick to his asset allocation and rebalance his portfolio in the wake of upsurge in Gold prices. We suggest investment in Gold through ETF/ E-gold as per needs and financial plan.