Adjusted Returns on Investment

Adjusted Returns on Investment

If someone asking you,  What is your monthly pay check or Salary ?

Then, we are hesitated to tell or show the exact numbers on salary, even after our deduction from salary :) . We are thinking about that we are protecting our income numbers !

That's not a matter, either showing the pay slip or not. But, on our Investment info, we have to be careful about the returns on numbers we earned it. We just enjoying to show this much returns i had on my investments or I had a profit of XXXXX from my investments. But, do you know what is your real returns received on your hand ?

Returns on Investment can by type of:

1. Inflation Adjusted
2. Tax Adjusted
3. Risk Adjusted

From the previous article, we have seen that about the difference between Real Rate and Nominal Rate of Return. It clearly indicates that we must aware about the Inflation, it hurts our retirement planning and Goal based investments.

For Example, 

If our Return is 10 % from the investment amount of Rs. 100 /- then our Nominal return amount would be Rs. 10 /- but it should be Adjusted by Inflation. If inflation @ 4 %, then our real rate of return is:

(1.10 / 1.04) - 1 X 100 = 5.76 %



Tax Adjusted:


It is the return earned after taxes paid. It also hurts you on paying taxes from your earned income or returns, so reducing the return ratio that comes to your hand.

Usually, Tax Adjusted Returns are lower than the Nominal Returns due to the tax have been paid.


For Example,


If we had a return of 10 % by an investment amount of Rs. 100 /- and the Tax implication at 30 % (Higher), then

Earned Interest Rate - 10 %
Tax to pay                 - 30  % of Rs. 10 =  Rs. 3 /-  [ i.e  10 X 30 / 100 = 3]

So, our Post Tax returns would be approx. 7 %

We can go through this below formula for Tax Adjusted Returns:


Tax Adjusted Returns (TAR):   Earned Interest Rate X (1 - Tax Rate)


10 % X ( 1 - 0.30) = 7 %


Why we need to do this calculation ?

When you are going to choose an investment product, we have so many products like Bank FDs, Bonds, Stocks, Mutual Funds, Realty, Gold, etc. We should aware about our Tax Status also to get the Real rate of return.

Suppose, A Bank FD pays you 8 % per annum and the Tax Free bond gives you 7 % p.a, and the Stock pays you 10 % Dividend yield for your investment amount of Rs. 100 /-


Post Tax Returns are:

Bank FD           -   5.6 %   (After Tax bracket of 30 % at higher)

Tax Free Bonds -  7 %    (Totally Tax Free)

Stocks               -   10 % (Dividend is free on investor's hand)


Tax Adjusted Returns are depend upon the investor's Tax Status. So we can compare the different type of investments and put our money on good-self.

Risk Adjusted:

It depends on how much risk we can make on our investments. Usually, Higher Risk indicates to High risk adjusted return, so he will be able to earn a higher return. The Risk Free rate of return is also followed, where the Risk Adjusted returns have the excess return. Excess Return is used to calculate as the excess of the investment return over this risk free rate. Technically in financial markets, there are two types of Risk Adjusted Ratio (measuring) are,

• Sharpe   Ratio
• Treynor Ratio

It really helps the investors' to pick up the investments based on Performance or Rank wise

Be clear on your Adjusted Returns next time :)

Great Investing on richinvesting.blogspot.com

Investment Returns - Real Rate vs Nominate Rate ?

Investment Returns - Real Rate vs Nominate Rate ?

Which one is better for my investment, Real Rate or Nominate Rate ?

Basically, the return on an investment defined on a Nominal Rate.

So, we have to know, what is a Nominal Rate of Return:


A Bank Fixed deposit gives you a 10 % interest (per annum) for your investment. Then, the nominal rate is also 10 % as it reflects the same. So, there is no need for any deduction from the interest bank pays you.

When the Nominal rate is adjusted with the inflation rate is known as, "Real Rate of Return".

The Real Rate of return helps the investor(s) to adjust with the inflation and getting to know the exact returns on your hand. Let us see the example,

A Bank FD gives you a 10 % interest (p.a) and the inflation rate is at 4 %, then the approximate real rate is:

  Nominal rate of return (or) Interest Rate - Inflation Rate

10 % - 4 % = 6 %  (An approximate real rate on easy calculation)

Effects of Real Rate of  Return:

• Usually, the Nominal rate is a Simple rate (Interest rate), which is always a Positive Rate. But, the Real rate can be Positive or Negative, due to the inflation adjustment. If Inflation rate is higher than the Nominal (or) Interest rate, then it will gives you a Negative rate of return. So as an investor, we should aware about the inflation rate and we cannot simply go with the bank what pays.

• The time value of money reflects the real rate of return. If an investment earns a nominal rate, that is the rate at which the money is being compounded. However, if inflation reduces the actual value of investment cash flows, the value of these returns are discounted by the Rate of inflation. So, we have an idea for the Real Rate of return with a formula,

((1 + Nominal Rate) / (1 + Inflation Rate))  -  1


Lets see,

Nominal Rate:   10 % (i.e FD interest rate)

Inflation Rate:    4 %


(1.10 / 1.04) - 1   =  5.76 %  (As we seen it earlier, approx: 6 %)


The Effect of Real Rate helps in Goal Based Investments, Insurance and Retirement Planning and we can now know the exact rate of amount receive on hands.


Great Investing !

Why Estate Planning should be mandatory ?

Why Estate Planning should be mandatory ?

Do you know about Investing Expenses ?

The expenses that can generate (or) produce an income, so that we can save / invest a part of money, would be deducted from our Regular Salary or Business income like as other expenses.

We daily saving / investing for our Goal based information. We regularly seeing what about our yield to date (YTD) on Returns. Our Dream goals are better and far more, it may be 20 years or 30 years or more than that. We depositing in a bank, mutual funds, stocks, realty, gold, etc. We are telling these investment instruments  will for the future of our Children. But, would you know, it's exactly fit for our kids or will settle as 100 percent for our kids ? We can't know. That's why we are talking about, ' The Estate Planning'. It's not just like a simple as we are thinking a Real Estate Property.

The Estate Planning:

“What makes greatness is starting something that lives after you.”

So, we should mandate ourselves to do for our Children (or) After us.

Estate Planning… refers to the Organized approach to managing the accumulated assets of a person in the interest of the intended beneficiaries.

We can have Enough Money...

We can have Big Goals...

We can have Better Wealth...

But, we should direct that above to whom you wish. Unfortunately, Nomination and Heirs are creating trouble after our absence. So, we most concentrate and plan of our Estate Planning. 

• During the Life time:

1. Joint Holding
2. Family Settlement
3. Trust
4. Gift
5. Power of Attorney

• After Death:

1. Will
2. Nomination

Will:

Will is defined as, the legal declaration of the intention of the testator with respect to his property, which he desires to be carried into effect after his death. 

The person who making the Will is the testator. His rights extend to what are legally his own and this Will comes into effect only after the death of the testator.

The person who is named in a Will to receive a portion of the deceased person's estate is known as a legatee.

The person named in the Will to administer the estate of the deceased person is termed as an Executor.

Nomination:

It is the right conferred upon the holder of an investment product to appoint the person entitled to receive the monies in case of the death.

A Nomination is seen as formal bequest authorized by the holder of the asset, though in the event of a dispute the nominee's position is reduced to being the trustee of the bequest, the final owners being decided according to the applicable laws of succession.

Note that: Only an individual can nominate. Nominee can be an individual, company or trust, depending on the terms of the investment or asset. Nomination can be appoint either at the time of starting an investment or any time, and it can be modified any number of times. 

The Purpose of the Nomination is simplification of payment process in the event of the death of the holder and not the equitable distribution of estate.

Joint Holding:

It will ease to enable specific family numbers, such as the spouse / partner or children, easily access assets through the simple method of Joint Holding. It means that the property is held by more than one person and can be accessed by the Joint holders subject to the mode of operations.

Usually Demat Accounts, Mutual Funds, Stocks, and Bank accounts can be held as Jointly. We should remember that if there is any legal contest among the heirs, joint holders right to the asset can be superseded by laws of succession as they may apply.

Family Settlement:

This is an instrument used to achieve peace and harmony in the family when there is a dispute or claims to the property that can lead to a long drawn out litigation. 

The main advantages of a family settlement are, Family arrangements are not treated as transfer and so there is no worry about Capital gains tax. It's also not treated as Gift. (Gifts are taxable sometimes as income from other source, subject to exemptions provided u/s 56(2)(vii) of the IT Act.)

Power of Attorney (POA):

POA is an instrument method by which a person may formally authorize another person to act on his behalf or as his agent on all matters or for a particular type of transactions. POA can have Donor and the Donee. Both the parties should have attained the majority, be competent to contract.

Usually, it helps on managing the sale of assets and related on Court dealings.

Mutuation:

When a property or asset acquired by a person from another one, on becoming the rightful owner of the asset should ensure that all the titles of the asset are correctly transferred to his name. 

It helps in updating the Revenue records to ensure proper revenue collection from the person who owned the asset or property.

So, we needed it as Mandatory ourselves for the Estate Planning same like Aadhaar (Unique Identification), PAN, Voter Id and GST (Goods and Service Tax). May be the Government will put mandate this in future.

There are so many legal counters in the court regarding this Estate Planning, due to non-appointed of Nomination, heirs, proper Will and other settlements.

How to E-file ITR 1 online ?

How to E-file ITR 1 online ?

What is ITR- 1 ?

The Income Tax Return (ITR) - 1 is a document or form that required to file by an individual whose total income for the Assessment year includes,

• Income from Salary or Pension (or)
• Income from House Property (or)
• Income from other sources.

ITR- 1 also known as 'Sahaj' meaning easy in Hindi Language.

The following individuals who cannot file this ITR- 1:

• If an individual's total income exceeds Rs. 50 Lakhs
• If agriculture income is more than Rs. 5000
• If you have any foreign assets
• If you have any taxable capital gains
• If income from more than one House property
• If you have income from Business or Profession.

For Filing a return ITR- 1, we can get this form from online or offline, filled the details required and send it to your nearest Income Tax Department's office.

Here, we are going to see, 'How to file the ITR - 1 form online ?

Step by Step:

1.  Go to https://incometaxindiaefiling.gov.in/    (or) Google it, 'incometaxindia efiling' and follow the link

2. If you are not registered, you can register yourself. Go to the link: https://incometaxindiaefiling.gov.in/e-Filing/Registration/RegistrationHome.html

[ It showing in the right side top of the page ]

You can select User Type, as an 'Individual' and continue...

Enter your PAN following with your surname, middle name, first name and date of birth. Kindly note while entering the PAN, your surname and the date of birth is mandatory.

After registering the required details, you should be go to the next page with the basic information of you, your address, email and mobile number. On completion of registration process, you have to be verify your mobile number and email by the authentication sent by the Income tax India E-filing website.

3. Now, you can login:  https://incometaxindiaefiling.gov.in/e-Filing/UserLogin/LoginHome.html

[ It showing in the right side top of the page ]

Enter you userid, i.e. your PAN and the password and fill with the captcha and login now.

Now, you can view a Dashboard for you. you can see some menus in the top. Click the  'e-file' menu  >  Prepare and Submit online ITR 

After clicking that, you can now see an info... ITR - 1 - Assessment year - 2017 -18

Structure of ITR - 1:

you can read the 'General instructions' under instructions of the ITR - 1 and there are 5 parts in the structure of ITR - 1 form.

• PART A GENERAL INFORMATION
• INCOME DETAILS
• TAX DETAILS
• TAXES PAID AND VERIFICATION
• 80 G 

Kindly read everything on all the 5 parts in the ITR - 1 and fill the details, whatever you required and want. On Data entry, you can click 'save draft' to avoid the loss of data entered. Don't be rush to click the 'Preview and Submit'. Fill it everything and finally you can preview the information you entered and submit there.

After submission / uploaded, you must e-verify your filed returns. You can have more option to verify

On Successful upload of Returns, you can use your Aadhaar OTP receiving on your mobile number to e-verify for the easiest way. You can have also other options like sending the ITR - V by post, EVC, validating through your bank account.

After Completion of the above process or not, you can just go the 'Dashboard' in the left side top of the page. In the Dashboard, you can check it out the returns / forms, any pending actions, cash transactions 2016.

If you have any comments related on this article, you can share your views here...

Great Investing !

Rich Investing - An Investment Thought to create Wealth

How is my Budget Planning today - April - June 2017 - PQFR

How is my Budget Planning today - April - June 2017 - PQFR

As we had discussed the 'Budget Planning' in the past two posts. Here now, i am keen to submit my PQFR (Personal Quarterly Financial Report) for the Quarter - April - June 2017.

Set your own Budget Planning

How to set a simple Budget Planning 2017

The report below created by me, is based on the Super Budget 50:30:20

On the report, my fixed expenses are vary due to Medical costs and grocery items on my relative appearance :)  kindly note that i mostly maintain the savings / investing above the Super Budget terms with 30 percent plus. I believe in savings / investing for my child and for the Retirement. So, it would insist me to Retire Early :-)

You can also do the PQFR yourself and go further with honest :)

If you interest to share any comments, i wish to listen for that

Rich Investing with PQFR !

SIP vs Lumpsum Investing - The better choice

SIP vs Lumpsum Investing - The better choice

Which one can you choose, Rented Home (or) Lease (or) Buy it ?

This is the choice we have for a home, as for the savings or investing, we had a plenty of investment products like Bank Savings and Deposits, Bonds, Mutual Funds, Stocks, Realty, gold, etc. But, it's all about how we started it. As a traditional background in our country, we mostly choose our choice like Regular small savings from our grandparents. The old method of savings or investing are a collection box called as Hundial, Postal small savings, Bank fixed deposits, buying a gold in a very small quantity, purchasing a piece of land for our children. Nowadays, it becomes more fashion as the investment method changes slightly with a Regular savings frequency mode and a bulky amount of deal at once. That is what we called earlier, Recurring deposits and Fixed deposits. Now it comes with the word, "Systematic investment plan (Recurring) and a Lump sum investing (Fixed deposit). So, now we are talking about the fashionable SIP and Lump sum investing.

SIP (Systematic Investment Plan):

'SIP' is nothing but drink something by taking in small, like 'he took a sip of the Red wine'  :)☺

Systematic Investment Plan (SIP) is an investment method that usually given by the mutual funds to its investors, to invest their money in a fixed amounts as periodically. This frequency mode may be weekly, monthly or quarterly. This SIP investment method is a disciplined strategy that the investors can make 'Rupee Cost Averaging', while the market price is low or high, it benefits the investors.

It is usually recommended for the small and retail investors who don't have the large amount of money to invest.

Lump sum investing:

It is an investment method with a Single (or) One time payment of investing. When you have a large amount of money on your hand to invest and if you couldn't able to invest regularly, then this is your better choice of investing at once.

It benefits the investors especially for the medium - to - large, who can utilize the market when it is low or Market crash.

It also gives the benefit of the Power of Compounding gets itself from the first day of investing, but you should be aware about the Market fundamentals and its movements like Economic factors.

Have you made Investment Insulation ?

Have you made Investment Insulation ?

'INVESTING' means the act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit. This is what the Investopedia describes.

Most of us while listening the word, 'Investing' is about thinking themselves, just putting some money on any Assets (Financial or Physical) and make a profit without knowing the importance of Financial Education. If somebody have ₹ 10,000 /- or ₹ 1,00,000 /- they simply buying an asset (Thinking that are Investing) without knowing the Risk of Investing.

Prevention is better than cure.

As for the Financial Education, Securing your assets whether financial or physical is mandatory. Securing your Assets / Investments is nothing but, it's an Investment Insulation. Investment Insulation protects your investments through the Insulation factors. It protects your daily financial life while your investments may make loss or No Earnings on investments.

We can also compare the Investment Insulation with the 'Net worth' of an individual.

Insulation Factors:

If you are looking to buy a Stock / Real Estate Property / Business (those are Risky), then ask yourself the Investment insulation before you buy.

Insulation Type	Factors / Benefits
Have you Sufficient Coverage of Insurance ?	Take Proper Term Insurance, Health and Accident Cover – Protects unexpected accident or loss, Health concerned
Have you made the Emergency Fund ?	Savings of 6-10 months of income – Loss of an income / job, Medical Expenses, other Emergency required
Have you  Monthly Saving / Investing ?	Recurring, Provident Fund, Mutual Fund Systematic Investment plan(SIP) – Financial Goal Planning like Child Education, Marriage and Retirement Corpus

And some other Factors are...

• Save Water - Protects our Legal Heir
• Consume Less - Electricity Power
• Planting Tree - Save Nature

That is what, Dev Ashish of Stable Investor tells that, 'Buying Health Insurance protects Your Wealth, not Health' based on these Investment Insulation.

Investment Insulation is not only for an individual, but it's a Social Obligation.