Systematic Investment Plan

A disciplined approach to investing

You’d be amazed what you could achieve by setting aside a small sum of money regularly. small sums(even of a few hundred rupees) saved in wise investments over long periods of time can result in a substantial sum of money, thanks to the Power of Compounding. Compounding is when your investments generate earnings on reinvested earnings. This ensures that every single rupee you invest constantly works hard for you.


  • It disciplines you to save regularly rather than arbitarily.
  • You can save in small amounts
  • Your investments have a chance to grow because of compounding benefits.
  • It helps reduce the risk of timing the markets.
  • Most importantly, it brings down the average cost of your investments(a Rupee saved is a Rupee earned).

NAV Movement

Month Amount Invested in Rs. Rising Market Units Falling Market Units Fluctuating Market Units
1. 1000 12 83.333 12 083.333 12 83.33333
2. 1000 14 71.492 10 100.000 15 66.66667
3. 1000 15 66.667 8 125.000 9 111.1111
4. 1000 18 55.556 6 166.670 12 83.33333
Total 4000 59 276.984 36 475.000 48 344.444
Rising Market Falling Market Fluctuating Market
Average Purchase Price 14.75 9 12
Per Unit Per month (59/4) (36/4) (48/4)
Average cost per unit 14.44 8.42 11.61

As can be seen from the above examples, you automatically gain without having to monitor the market or attempting to predict the market for purchasing the units.

A Systematic Investment plan allows a minimum of Rs 500 to be invested every month or quarter for a minimum of 6 months.By investing regular sums of money, it allows you to make the volitilities of the market to work in your favour.Since the amount invested every month is a constant, the investor ends up buying more units when the price is low and fewer units when the price is high. Therefore, the average unit cost will always be lower than the average purchase price per unit irrespective of the market rising, falling or fluctuating.

This concept is called : Rupee Cost Averaging.

Where should you invest?

If you prefer moderate returns with limited risk then we recommend the Balanced Fund or if you are looking for long term capital appreciation, we recommend the Growth Plan.

The following table gives the details an example.

Scheme Initial


Minimum Post dated Cheques
Monthly SIP Quarterly SIP
Balanced Fund 3,000 1,000 1,500
Growth Fund 3,000 500 1,500

How do you get started?

It’s Simple:

  • Ask for the application form and fill the same.
  • Towards the initial investment, please write a cheque (minimum amount) plus write our 4 Post dated cheques(incase of quarterly) or 12 post dated cheques (incase of monthly).

The benefit of Value Cost Averaging (VCA) over Rupee Cost Averaging(SIP).

The basic tenant of investing is buying low and selling high. However, this principal, is often never put to use, because fear, greed are stronger than long term investing discipline.

What is even sadder is the public, normally buys at highs and sells at lows, which grossly undermines returns and the investor, ends up loosing money and not being happy with the investment decision or the financial planner.

The basic tenant of investing systematically through a disciplined and long term savings approach would create wealth in abundance for the investor.

Value Cost Averaging (VCA), is an investment technique similar to Systematic Investing (SIP), where investments are made systematically over a period of time, but the quantum of investment in VCA changes depending on market fluctuation.

This ensures your portfolio value rises by a specified amount at every installment period, regardless of market conditions.

Sounds interesting..? Read on.

VCA enables financial planners reach the desired goal amount in a more predictable manner.

VCA fixes a target amount each month, and ensures this target amount is maintained every month, irrespective of the market price. Therefore, the investor, buys or sells, only those units that are required to maintain the predestined portfolio worth at each revaluation point, which is typically every month.

Therefore, the simple principal is, in falling markets, one buys more units and in rising markets, one buys fewer units or may even require to sell some units to maintain the target portfolio amount.

In Systematic Investment Plan(SIP) a fixed amount is invested every month, irrespective of the predetermined portfolio value. This is also called Rupee Cost Averaging.

Therefore, the distinctive feature of VCA over SIP or rupee cost averaging is as a rule, VCA may also result in selling some units, to maintain the desired portfolio target, which SIP does not do.

An illustration is provided below on the workings of VCA and SIP

Variable Investment Plan (Value Cost Averaging concept)

Month NAV Target Portfolio amount Cumulative units Units Purchased/ Sold Amount Invested per month
1 10 1000 100.00 100 1000
2 12 2000 166.67  66.67   800
3 16 3000 187.50  20.83   333
4 12 4000 333.33 145.83 1750
5 17 5000 294.11 -39.22 -666.74
6 15 6000 400.00 106  1590
Total Amount Invested 13.66 6000 400.00 400.00 4807
Average cost per unit 12.01

Systematic Investment Plan (Rupee Cost Averaging concept, using the same figures)

Month NAV Target Portfolio amount Cumulative units Units Purchased Amount Invested per month
1 10 1000 100.00 100 1000
2 12 1000 183.33  83.33 1000
3 16 1000 245.83 62.50 1000
4 12 1000 329.16 83.33 1000
5 17 1000 387.98 58.82 1000
6 15 1000 454.65  66.67 1000
Total Amount Invested 13.66 6000 454.65 454.65 6000
Average cost per unit 13.19



Illustration of Variable Investment Plan or Value Cost Averaging in a Rising Market

Month NAV Target Portfolio amount Cumulative units Units Purchased/ Sold Amount Invested per month
1 10 1000 100.00 100 1000
2 14 2000 142.85 42.85   600
3 16 3000 187.50 44.65   714
4 18 4000 222.22 34.72   625
5 26 5000 192.30 -29.92 -778
6 26 6000 230.76   38.46  1000
Total Amount Invested 18.33 6000 240.00 640.00 3161
Average cost per unit 13.17


Illustration of Variable Investment Plan or Value Cost Averaging in a Falling Market

Month NAV Target Portfolio amount Cumulative units Units Purchased/ Sold Amount Invested per month
1 40 1000 25.00 25.00 1000
2 34 2000 58.82 33.82 1150
3 32 3000 93.75 34.93 1117
4 32 4000 125.00 31.25 1000
5 16 5000 312.50 187.50 3000
6 10 6000 600.00  287.50 2875
Total Amount Invested 27.33 6000 600.00 600.00 10142
Average cost per unit 16.90


Therefore Value Cost Averaging helps in achieving:

  1. Lower Average Cost per unit when compared to SIP.
  2. Reduces Portfolio Volatility.
  3. Helps achieve goal based target value.

While, this is an excellent option, most funds barring a few, do not have this unique technique to offer investors.

(Contributed by Dilshad Billimoria Certified Financial Planner and Investment Advisor)

Can be reached at

How to know Your A/c Statement?


Name and address of the First Account Holder; Joint Holder(s) if any, are listed after the address.
Bar code identifying the Folio Number.
Address of the Registrar and Share Transfer Agent. Investor Service Centre information on the reverse.
A unique number which identifies your account.
05 The date on which your Account Statement was printed. 06 The Scheme and Investemnt Plan(i.e.unit class) you have invested in.
07 NAV used to calculate the Market Value of your investment. 08 Date on which the transaction was executed.
09 Brief description of the transaction. 10 Transaction amount in Rupees
11 Price at which the transaction was executed. 12 Number of units bought or sold at the transaction price
13 Unit balance as of the end of the Statement Period. 14 Account No. and Bank Branch.
15 Units pledged by you and on which the Registrar and Share Transfer Agent has placed a lien. 16 Name of the broker whose code appeared on your Application Form.
17 Dividend option selected. 18 Transaction slip which you can use to make subsequent purchase, redeem your lunits, switch between schemes and between investment plans and request change of address or bank details.
19 Mode of holding can be Single, Joint or Anyone or Survivor. 20 Folio Number under which transactions will be recorded.

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Mutual Fund FAQs

What is a Mutual Fund?
A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI), that pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. In other words, a mutual fund allows an investor to indirectly take a position in a basket of assets^ Top ^

Which was the First Mutual Fund to be set up in India?

Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units under the scheme US-64

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Which are the other institutions that have floated Mutual Funds in India?
Currently public sector banks like SBI, Canara Bank, Bank of India, institutions like IDBI, GIC, LIC Foreign Institutions like Alliance, Morgan Stanley, Templeton and Private financial companies like Kothari Pioneer, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc. have floated their own mutual funds

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How many Mutual Funds are there in India currently?
Presently there are 33 Mutual Funds in India and close to 400 mutual fund schemes. We will very soon be putting up detailed analysis of major schemes operating in India.

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Why has the concept of mutual funds taken so long to pick up in India?
Even in the US the concept of mutual funds has started picking up only in the last decade. This whole process of investor education and investor awareness takes a lot of time. But Indian investors are now beginning to understand the benefits of investing through the mutual funds route and hence the collections are beginning to pick up.

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What is the total size of the mutual fund sector in India? 
Currently the total funds under mutual fund management in India are a little over Rs.100,000 crore. Out of this UTI accounts for nearly 70 percent while the private funds account for around 22 percent. The balance 8 percent is managed by mutual funds floated by public sector banks and financial institutions.

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What is the Regulatory Body for Mutual Funds?
Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds mentioned above. All the mutual funds must get registered with SEBI. The only exception is the UTI, since it is a corporation formed under a separate Act of Parliament.

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Why should I choose to invest in a mutual fund?
For a retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative. This is because:

(1) Mutual Funds provide the benefit of cheap access to expensive stocks
(2) Mutual funds diversify the risk of the investor by investing in a basket of assets
(3) team of professional fund managers manages them with in-depth research inputs from investment analysts.
(4) Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information which individual investors cannot access.
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How do mutual funds diversify their risks? 
Financial theory states that an investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.

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If that is the case then why has Morgan Stanley Fund given such poor returns?
A very important factor that determines the returns on a fund is the timing of the fund’s launch. Morgan Stanley Fund was launched when the equity markets were at their peak and then saw a sustained downtrend for close to 5 years. That is the reason the fund has taken such a long time to appreciate.

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Can mutual funds be viewed as risk-free investments?
No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced.

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What are the risks involved in investing in mutual funds? 
A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.

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What are open-ended and closed-ended mutual funds? 
In an open-ended mutual fund there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended mutual fund at any point of time at a price that is linked to the net asset value (NAV). In case of closed-ended funds, the total size of the corpus is limited by the size of the initial offer.

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Do both open-ended and closed-ended funds come out with an initial offering? 
Yes. But the only difference is that in case of open-ended funds, a month after the initial offer closes the continuous offer period starts when the investor can enter and exit the fund at a price linked to the NAV

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Is the purchase and redemption in case of open-ended funds done at the NAV? 
Generally every fund levies either an entry load or an exit load or both to provide for administrative and other routine costs. The purchase price will be higher than the NAV to the extent of the entry load and the redemption price will be lower than the NAV to the extent of the exit load.

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What is the investor’s exit route in case of a closed-ended fund? 
According to Sebi regulations, all closed-ended funds have to be necessarily listed on a recognized stock exchange. Thus the secondary market provides an exit route in case of closed-ended funds.

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How do I invest money in Mutual Funds? 
One can invest by approaching a registered broker of Mutual funds or the respective offices of the Mutual funds in that particular town/city. An application form has to be filled up giving all the particulars along with the cheque or Demand Draft for the amount to be invested.

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What are the parameters on which a Mutual Fund scheme should be evaluated? 
Performance indicators like total returns given by the fund on different schemes, the returns on competing funds, the objective of the fund and the promoters image are some of the key factors to be considered while taking an investment decision regarding mutual funds.

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As a lay investor, how do I go about analyzing the mutual fund scheme? 
As a service to the investing community, We do it for you. Our research team evaluates each scheme based on primary as well as secondary information and presents an unbiased report which will help you to take a decision on whether a fund is worth investing or not

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What are the different funds we currently have in India? 
Currently there exist balanced funds, Income fund, Growth funds, Sector funds etc. To get more details about the different funds and their features please visit our mutual fund glossary

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What are the different types of plans that any mutual fund scheme offers? 
That depends on the strategy of the concerned scheme. But generally there are 3 broad categories. A dividend plan entails a regular payment of dividend to the investors. A reinvestment plan is a plan where these dividends are reinvested in the scheme itself. A growth plan is one where no dividends are declared and the investor only gains through capital appreciation in the NAV of the fund.

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Which plan should I choose? 
It depends on your investment object, which again depends on your income, age, financial responsibilities, risk taking capacity and tax status. For example a retired government employee is most likely to opt for monthly income plan while a high-income youngster is most likely to opt for growth plan.

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What is a Systematic Investment Plan and how does it operate? 
A systematic investment plan is one where an investor contributes a fixed amount every month and at the prevailing NAV the units are credited to his account. Today many funds are offering this facility.

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What are the benefits of s Systematic Investment Plan?

(1) It avoids lump sum investment at one point of time
(2) In a scenario of falling prices, it reduces your overall cost of acquisition by a process of rupee-cost averaging. This means that at lower prices you end up getting more units for the same investment
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What is NAV and how it is calculated? 
NAV is the net asset value of the fund. Simply put it reflects what the unit held by an investor is worth at current market prices. For details on calculation methodology and formulae, please click on our mutual fund glossary

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What proportion of my investment should be invested in mutual funds? 
Once again this decision will depend on factors like your income, savings, risk aversion and tax status.

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Like IPOs, can there be any situation wherein I am not allotted the units applied for in the initial offer? 
In case of closed-ended funds there is a target amount and the funds are permitted a green-shoe option to retain over-subscriptions up to a certain limit. In case of open-ended funds there are no such limits and all applications are honored.

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How do I get the information regarding the forthcoming schemes of different mutual funds? 
For the guidance of the investors our web site is giving a detailed analyses of the forthcoming schemes of different mutual funds .You can visit our website to get such information on forthcoming scheme openings.

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Can a Mutual Fund assure fixed returns? 
As per Sebi Regulations, mutual funds are not allowed to assure returns. However, funds floated by AMCs of public sector banks and financial institutions were permitted to assure returns to the unitholders provided the parent sponsor was willing to give an explicit guarantee to honor such a commitment. But in general, mutual funds cannot assure fixed returns to their investors.

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How much return can I expect by investing in mutual funds? 
Investors need to be clear that mutual funds are essentially medium to long term investments. Hence, short-term abnormal profits will not be sustainable in the long run. But in the medium to long run the mutual funds tend to outperform most other avenues of investments at the same time avoiding the risk of direct investment accompanied with professional fund management.

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What is the difference between mutual funds and portfolio management schemes? 
While the concept remains the same of collecting money from investors, pooling them and investing the funds, the target investors are different. In the case of portfolio management the target investors are high networth investors while in case of mutual funds the target investors are the retail investors.

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How does the concept of entry load work in case of unit purchases? 
An entry load is an additional cost that an investor pays at the point of entry. Assume that your proposed investment is Rs.10,000/-. Also assume that the current NAV of the fund is Rs.12.00 and that the entry load is Rs.0.50. Then you will receive 10000/12.50 = 800 units. For detailed explanation of entry load, refer our mutual fund glossary.

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How does the concept of exit load work in case of unit redemptions? 
An exit load is levy that an investor pays at the point of exit. This is levied to dissuade investors from exiting the fund. Assume that the current NAV of the fund is Rs.12.00 and that the exit load is Rs.0.50. Now if you sell 800 units then you stand to receive 800X11.5 = Rs. 9200. For detailed explanation of exit load, refer our mutual fund glossary.

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Can an investor redeem part of the units? 
Yes. One can redeem part units also.

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Say I redeem and buy and do likewise several times then, how do I keep track of my portfolio? 
The moment you buy or get allotted the units, a passbook will be given to you mentioning the number of units allotted/bought and redeemed by you. The recording of entries would be similar to your pass book entries in the bank. In mutual fund terminology it is called Account Statement.

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Nowadays, I see lot of advertisements of Infotech funds. Do you advise to invest in them? 
As an investor you need to exercise caution in two areas :

(1) Most funds while advertising tend to annualize their monthly returns which is arithmetically correct but technically wrong because usually such returns are not sustainable.
(2) The fund must have a sound strategy for analyzing and investing in infotech companies
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What are the broad guidelines issued for a MF?

SEBI is the regulatory authority of MFs. SEBI has the following broad guidelines pertaining to mutual funds :
(1) MFs should be formed as a Trust under Indian Trust Act and should be operated by Asset Management Companies (AMCs).
(2) MFs need to set up a Board of Trustees and Trustee Companies. They should also have their Board of Directors.
(3) The net worth of the AMCs should be at least Rs.5 crore.
(4) AMCs and Trustees of a MF should be two separate and distinct legal entities.
(5) The AMC or any of its companies cannot act as managers for any other fund.
(6) AMCs have to get the approval of SEBI for its Articles and Memorandum of Association.
(7) All MF schemes should be registered with SEBI.
(8) MFs should distribute minimum of 90% of their profits among the investors.
There are other guidelines also that govern investment strategy, disclosure norms and advertising code for mutual funds.
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Yes in case of certain specific Equity Linked Saving Schemes, tax benefits are available under Section 88 of the Income Tax Act. In such cases the fund prospectuses explicitly states that it is a tax saving fund. In such cases 20 percent of your contribution will qualify for rebate under Section 88 of the Income Tax Act.

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Do investments in mutual funds offer tax benefit on capital gains? 
Yes. If the capital gains earned by you during a financial year is invested in specified mutual funds then such capital gains are exempt from capital gains tax under Section 54EA and Section 54EB of the Income Tax Act. For more details on scheme specific exemptions. Contact Us.

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What is the difference between Section 54EA and Section 54EB as far as capital gains tax exemptions are concerned? 
Under Section 54EA the net Consideration (total sale consideration – relevant expenses) arising out of sale of Long Term capital assets need to be invested in specified in specified mutual funds with a lock-in period of 3 years. Under Section 54EB just the capital gains are re-invested but the lock-in period is 7 years.
Please note that in the latest budget this exemption is being withdrawn for investments in mutual funds and is being restricted only to bonds issued by NABARD and by the NHAI.

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Can I claim tax exemption under Section 88 and Section 54 for the same investment? 
No. You cannot. You can either exempt your income from tax under Section 88 or exempt your capital gains from tax under Section 54.

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Do mutual fund investments attract wealth tax? 
No. Under the Wealth Tax Act, all financial assets, including mutual fund units are exempt totally from Wealth Tax.

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If I gift mutual fund units, does it attract gift tax?
If I gift mutual fund units, does it attract tax?

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Is my income from mutual funds exempt from income tax?
Yes. Your income from mutual funds in the form of dividends is entirely exempt from income tax provided the fund in question is a equity/growth fund where more than 50 percent of the portfolio is invested in equities.
Please note that in the current Union Budget 2000, the tax on debt funds has been increased from 10 percent to 20 percent.

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What are my major rights as a unitholder in a mutual fund? 
Some important rights are mentioned below:

(1) Unit holders have a proportionate right in the beneficial ownership of the assets of the scheme and to the dividend declared.
(2) They are entitled to receive dividend warrants within 42 days of the date of declaration of the dividend.
(3) They are entitled to receive redemption cheques within 10 working days from the date of redemption.
(4) 75% of the unit holders with the prior approval of SEBI can terminate AMC of the fund.
(5) 75% of the unit holders can pass a resolution to wind-up the scheme.

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Who is an NRI?
(1) An NRI is an Indian citizen who stays outside India.
a. For purposes of carrying out employment or any business or vocation
b. Under circumstances indicating an intention to sta

y outside India for an uncertain duration.

(2) Any Indian citizen deputed outside India for a temporary period in connection with employment.
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Who is a PIO?

(1) An NRI is an Indian citizen who stays outside India.
a. For purposes of carrying out employment or any business or vocation.
b. Under circumstances indicating an intention to stay outside India for an uncertain duration.
(2) Any Indian citizen deputed outside India for a temporary period in connection with employment.
A citizen of a foreign country (other than a citizen of Bangladesh or Pakistan) is a PIO if:
(1) He/She at any time held an Indian Passport OR
(2) He/She or either of his parents or any of his/her grandparents was a citizen of India OR
(3) Spouse (not being a citizen of Bangladesh or Pakistan) of an Indian citizen (a) or (b) above.
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What are the products offered to NRI?

NRI can invest in the following products.
(1) Equity trading on BSE and NSE
(2) Derivatives trading on the NSE
(3) IPO online
(4) Portfolio Management
(5) Investments in Mutual Funds
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What steps an NRI needs to take to start investing in the Indian Stock Market?

(1) An NRI should open a new bank account (NRE/NRO or both) with designated bank which is approved by RBI (Reserve Bank of India) for this purpose.
(2) He should apply for a general approval for investment in Indian Stock Market through his designated bank branch.
(3) He should open a Demat Account with an NBFC to hold his shares and register to execute his buy/sell orders on the stock exchange(s).
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What type of saving bank account(s) can be opened by an NRI or PIO in India?

Any NRI/PIO can open two types of savings accounts with any bank in India. They are NRE and NRO bank accounts.
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What is a NRE account?

A NRE bank account is an external saving bank account opened for Non resident Indians. This is why it is known as Non-Resident External account. Since it is an external account, any monies lying in NRE account can be taken outside the country or in other words, the monies lying in NRE account are fully repatriable. This money can be converted into any foreign currency at the behest of the account holder and can be remitted outside the country.
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What is a NRO account?

A NRO bank account is an ordinary saving bank account opened for Non resident Indians. This is why it is known as Non-Resident Ordinary account. Since it is an ordinary account i.e. as good as a normal saving bank account, monies lying in NRO account cannot be taken outside the country or in other words, the monies lying in NRO account are not repatriable.
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Can money be transferred from NRE account to NRO account?

Yes money can be freely transferred from NRE account to NRO account.
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Can money be transferred from NRO account to NRE account?

No, money cannot be transferred from NRO account to NRE account.
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What is the status of NRO/NRE accounts on the return of the account holder to India?

RBI has advised banks to re-designate such accounts as resident accounts on return of the account holder to India.
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In case a resident Indian becomes a non-resident, will he/she be required to change the status of his/her holding from Resident to Non-Resident?

As per section 6(5) of FEMA, NRI can continue to hold the securities, which he/she had purchased as a resident Indian, even after he/she has become a non-resident Indian, but has to transfer the shares to his NRO (Non Resident Ordinary) account
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Can NRIs invest in shares, debentures and units of Mutual Funds in India?

NRIs are permitted to make direct investments in shares/ debentures of Indian companies/ units of mutual fund. They are also permitted to make portfolio investments i.e . purchase of share / debentures of Indian Companies through stock exchange. These facilities are granted both on repatriation and non-repatriation basis.
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NRIs subscribe to public issues? What are the permissions/approvals required?

Yes. The issuing company is required to issue shares to NRI on the basis of specific or general permission from GOI/RBI. Therefore, individual NRI need not obtain any permission.
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Does an NRI require any permission to receive bonus/rights shares?

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What is PIS?

Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) defined in Schedule 3 of Foreign Exchange Management Act 2000 under which the ‘Non Resident Indians (NRIs)’ and ‘Person of Indian Origin (PIOs)’ can purchase and sell shares and convertible debentures of Indian Companies on a recognized stock exchange in India by routing all such purchase/sale transactions through their account held with a Designated Bank Branch.
Any NRI or a PIO wanting to trade/make fresh investments in the Indian Equity Secondary Market needs and must have one PIS account with only one designated bank in India.
(1) PIS account is applicable only for NRIs and not for resident Indians.
(2) It is only for trading in Indian markets and not any other foreign markets.
(3) It is applicable only for equity trades and not MF investments.Q) I am an NRI working in the UK for the last 4 years. I have just received my PF settlement from the Indian company I worked for in Mumbai. Can I deposit my PF earnings into the NRE account?^ Top ^

A) The PF funds originated in India and therefore cannot be credited to the NRE account, which receives foreign currency only. You can credit these funds to your NRO account.Q) Is interest earned on NRE Recurring Deposit taxable?

A) No, the interest on all types of NRE accounts is tax-free.Q) If I sell my property in India and if there is a “white” value and a “non-white” value, how do I legally repatriate the total proceeds of the sale?

A) Money which cannot be accounted for or is “non-white” cannot be repatriated.Q) Is the capital gains tax when selling property same for both long and short term gains?

A) Short-term capital gains are taxed as normal income and long-term gains with indexation are taxed @20%.Q) I am an NRI and now due to acquire American citizenship. What happens to my property, residential and agricultural, which I am inheriting from my parents? Is it a problem to keep an inherited agriculture property with an OCI status?

A) Obtaining OCI status gives you additional rights and privileges over and above the ones you enjoyed in your capacity as a Person of Indian Origin. You had a right to own and maintain inherited agricultural property and therefore, you continue to enjoy this right. However, if and when you decide to sell or gift away the property, note that you can do so to a Resident Indian only and not to an NRI or PIO.Q) My son remits funds to my savings account every month – how is the tax levied on it?

A) There is no tax liability on the funds which your son is gifting to you. However, you can follow a procedure to protect your savings from tax by accepting the gift in writing, mentioning the relationship between the donor and donee.Q) Is it mandatory as a NRI PAN Card holder to submit yearly returns with IT Department even if all my income is through my earnings from outside India?”

A) There is no legal obligation to file tax returns unless the income chargeable to tax exceeds the minimum tax threshold of Rs. 1, 00,000.Obtaining a PAN card has nothing to do with the above requirement. In other words, if your Indian income does not exceed Rs. 100,000, regardless of whether you have a PAN card or not, you do not have to file a tax return.Q) Do I need to declare all the money that I have in my NRE account for the last 5 years? Do I need to pay any taxes on it?

A) If you have maintained your NRI status for the last 5 years, the income in your NRE account is free from tax. Note that tax is collected only on interest, not on the capital. You can include the information on your NRE account in your annual return, even though you do not need to pay tax on it.Q) I will be posted to the UK shortly, but I wish to continue with my savings bank account from which I can make transfers to my family in India. Is this possible, and what are my tax liabilities?

A) On becoming an NRI, you are required to inform all your banks and also all the companies where you have investments about the change in your status within a reasonable time. The banks will re-designate your accounts as NRO. You can use this account the same way as you used it before becoming an NRI.You must also inform all the companies of whose shares you hold, about change in your status. If you have a demat account, it is not necessary to inform the companies but informing the DP is a must.You will also start filing your tax returns in your new NRI status. If the Indian income is below the taxable threshold, there is no need to file the returns but it is practical to do so for maintaining the continuity.Even after you become an NRI, you are free to deal with all your investments and assets you held prior to becoming an NRI. The only restriction is that the original amount is non-repatriable.

It is better to open an NRE account since the interest on it is tax-free in India as long as you are an NRI.

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Q) I will be earning a rental income of around Rs. 6 lakh a year from my property in India. I don’t have any deduction to claim and I haven’t taken any loans from an Indian Bank. How much tax am I liable to pay? Do I fall in the 30% tax bracket and TDS from rental income 15%? Do I need to pay totally 30% + 15% tax or only 30% (out of that 15% will be TDS (like Tax withholding) and remaining 15% when I file the taxes.


  • Surcharge @10% on tax computed after taking into account deductions, will be levied only if the net total income is over Rs. 10 lakh.
  • Marginal relief is available by limiting it to the income over Rs. 10 lakh.
  • Education cess @3% on total tax is applied on the tax liability thus arrived at.
  • TDS is like withholding tax and the tax deducted can be netted off against your total tax liability.
  • Note: There is a standard deduction of 30% available on rental income.
  • It is a little difficult to compute the net income chargeable to tax and you will do well by taking some professional help.

Q) I am buying a residential property for Rs. 50 lakh in Mumbai from my savings in USD. If I sell the apartment after 3 years, how do I repatriate those funds? Or do I need to hold that property for 10 years to sell it?
A) For property purchased out of foreign funds, as far as repatriation rules are concerned, you can sell it anytime. The lock in period for such property has been lifted

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Q) Instead of using foreign funds to buy residential property, if I take a loan from an Indian bank (say 85% of agreement costs), do the rules of repatriation change?
A) If you buy the property on mortgage by taking housing loans, repatriation will still be possible if you pay off the loan instalments in India through your NRE account or by transferring funds from abroad.

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Q) As a US citizen, can I own property in India? If I return to India, will I be taxed in India and the US? Will my US income be taxed in India?
A) Yes, as a PIO, you are eligible to buy property other than agricultural property. On your return to India, you will be a RNOR for 2 years during which your forex income will not be taxable in India. After that your global income will be taxable in India. If you are taxed in both the countries, India as well as USA, the Double Taxation Avoidance Agreement between them will protect you.

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Q) I live in Indonesia and hold an account in India for purchasing mutual funds/equities from the secondary market. Am I liable to pay any Capital Gains tax when I sell/redeem these shares/funds?
A) Equity-based MF schemes (65% or more exposure to equities) are governed differently from the debt-based schemes. In both cases, dividend is tax-free in the hands of the investor. However, there is a dividend distribution tax @14.025% payable by the MF directly to the exchequer in the case of debt-based whereas the equity-based are exempt from this tax.

Equity-based schemes are also exempt from long-term capital gains tax (holding period over 12 months). The short-term capital gains are taxed @10.2% only.

In the case of debt-based schemes, short-term gains are treated as normal income of the assessee and taxed at the rates applicable to the assessee. The long-term gains will attract tax @10.2% without indexation or @20.4% with indexation, whichever is more beneficial to the assessee.

In the case of ELSS, there is an additional benefit of deduction u/s 80C.

There are following 3 tax concessions on investment in equities traded on a recognised stock exchange in India:

  • Dividend is tax-free in the hands of the investor but there is a dividend distribution tax paid directly by the company @14.025%.
  • The long-term capital gains are exempt upto Rs. 50 lakh on sale of property
  • The short-term capital gains enjoy the concessional flat rate of tax @10.2%.

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Q) My wife was working in Doha for the last 2 years. After marriage she has settled in India and will be here for at least a year. She is working on internet-based online jobs from the US for which she gets paid into her NRE account. Is this the right way to be paid? Does she have to pay income tax?
A) Since she is now a Resident Indian she cannot maintain a NRE account. The NRE account will be converted to a resident account on her informing her bank about the change of her residential status.

She is liable to treat the money received as her taxable income in India. If the income is over Rs. 1, 45,000, she is liable to file a tax return.

She should apply for PAN.PAN is required not only for filing returns but also for several transactions in India

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Q) How long will I be considered as Non-Resident or Not Ordinarily Resident after I return to India to settle down?
How long after my return to India will my income from investments including deposits with Banks, including Indian banks located in foreign countries, qualify for exemption from Income tax? What are tax free and safe investments in India?
A) If your stay in India during the Financial Year is 182 days or more, your residential status will be as Resident Indian.

There is a transitional status of RNOR between being an NRI and becoming a full-fledged Resident after returning to India permanently. An RNOR is not required to pay tax in India on his forex income. Anyone who returns after 9 or more years of being an NRI will become RNOR for 2 years.

Resident but not Ordinarily Resident (RNOR) is a person who satisfies one of the following conditions —
a) he has been a non-resident in India in nine out of the ten previous years preceding that year, or
b) has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.

An NRI who has returned to India permanently is allowed a reasonable time to inform all the banks (and companies) about the change in his status wherever he has his investments. On receipt of this information, the bank will re-designate the NRE/FCNR accounts as a ‘Resident’ account. These can be run up to their maturity but the interest on NRE becomes taxable from the date of the return whereas the FCNR interest is tax-free as long as the holder remains an NRI or becomes an RNOR. Alternatively, both the accounts can be converted into RFC without any penalty but the interest even on RFC is tax-free only for RNORs.

Whether RFC is tax-free or not, withholding tax will be applied @30.6% and if the interest is over Rs. 10 lakhs, the rate will be 33.99%.

The NRE SB and NRO SB accounts will be re-designated as Ordinary SB accounts.

It is also necessary to inform all the companies/DPs where you have investments about the change in your residential status.

PPF is the only safe and tax-free investment at present. There are other investments which yield tax-free returns but are subject to market fluctuations and consequently not risk-free. Fixed income investments other than PPF do not yield tax-free returns.

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Q) I am a NRI working in the USA. I would like to know whether withdrawal from 401K which is a contributory retirement fund in USA will be taxable in India if I bring the money here, even though this is already taxed in the US
A) Normally 401K is distributed at retirement. At that time, the person need not be an NRI. There are several NRIs who eventually come home to settle in India. However, due to their past employment, they may be getting some pension in India from abroad. Article 20 of the Indo-US Double Taxation Avoidance Agreement spells out that pensions would be taxable in the country of Residence- India, in this case. However, Social Security Benefits or other public pensions would be taxed only in America.

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Q) Currently I am having an NRE account with an Indian bank. I am an Indian citizen living in the USA for the last 7 years. If I become a US citizen, would my current account be closed and do I need to open a new one, or can I continue to operate my NRE account from here?
A) The change of citizenship does not change your rights to operate the NRE account. You will be a Person of Indian Origin (PIO) which allows you to handle the NRE account the same way as a NRI.

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Q) I am a NRI resident in Canada for the last 15 years and hold only an NRE savings account in Delhi., I would like to know
1) if I buy a commercial property in India (payment made through my NRE account) will I have to inform the bank before I make a payment through my NRE saving account?
2) If I get Rs.15, 000 per month as rent, how much tax will I pay on this and will I need to file in a tax return form?
3) If I buy this property for Rs.40 lakh and sell it for Rs. 60 lakh after 3 years, can I invest this 60 lakh to buy another commercial or residential property without paying any capital gains tax?

  • Though there is no rule or specification as such, it is better to keep the bank informed
  • This is a complex matter. You can approach a consultant in the field of filing returns. Briefly, you are allowed deductions for property taxes on annual value (computation of which is complex) of the property and also a standard deduction of 30%.
  • You will be earning long-term capital gains. You can claim exemption u/s 54F by purchasing a residential house within 1 year before or 2 years after the date of sale of the old house. Alternatively, you may construct a residential house within 3 years after the date. It is necessary to apply net sale proceeds (after the related expenses) for purchasing a residential house (and not a commercial property.)
  • The amount which is not invested before the filing of returns for the year or the statutory last date for filing the returns, whichever is earlier, is required to be parked in ‘Capital Gains Account Scheme’ with a bank in India.

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Q) I am working in Saudi Arabia on a work permit since August 2006. Currently I have a normal savings bank account in India and don’t have an NRE account.
I am sending money home through a wire transfer service. Do I need to pay any tax on the money earned in Saudi Arabia? If not, how do I show this income in my form 16 so that it can be tax free? Also what kind of proof is required to show the source of income? How do I save tax? Do I need to open an NRI account for showing my status as NRI for saving tax on this income as I will be here for another 8 months.
A) You are likely to become an NRI for the FY 06-07, unless you come to India for a short trip rendering your stay in India for 182 days or more.

  • On becoming an NRI, legally you are required to inform all your banks and also all the companies where you have investments about the change in your status within a reasonable time. The banks will re-designate your accounts as NRO.
  • It is illegal for an NRI to continue to hold their normal Resident bank accounts.
    It is also necessary to inform all the companies of whose shares you hold, and UTI/MFs about change in your status.
  • Transfer by itself does not create any tax-liability. If the money transferred is capital in nature, the question of paying tax thereon does not arise.
  • If your status for the Financial Year ‘April-March’ is NRI and if the money earned abroad is an income not arisen out of some nexus with India, either by way of Indian employment or business, the question of levying tax on it does not arise.
  • Otherwise, your global income is taxable in India, whether you transfer it to India or not.
  • You may open an NRE account for earning tax-free interest and maintain the repatriability of the corpus in the account.

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Q) What is the TDS deducted on NRO fixed deposit interest?
A) The interest on NRO is fully taxable at the rates applicable to Residents. But there is no income threshold under which TDS is not chargeable. However, TDS is applicable @30.6% and nothing can be done in practice to avoid it.

The only recourse open is to claim refund by filing tax returns.
In case the interest payable is over Rs. 10 lakh from the same branch of the bank, there is a surcharge of 10% taking the total tax to 33.99%. There is a marginal relief available by way of the surcharge payable being limited to the income over Rs. 10 lakh.

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Q) I am contemplating the sale of a plot of land in Gurgaon for approximately 60 lakh. Can I deposit the proceeds into my NRE or NRO account? I understand that the street value of my plot of land is higher than the official value. Therefore, it appears as if the official documentation related to the sale will specify a sale value of Rs. 40 lakh instead of Rs. 60 lakh.
Please help me understand the tax implications of this land sale.
A) If you have purchased the plot by applying forex by direct remittance or through NRE account, you can credit the original forex amount of cost of acquisition to NRE. Otherwise, you will have to credit it to NRO.

If you have acquired the property over three years ago, then the profit on sale would be long-term capital gains and taxed @20%. There is a facility available for indexing the cost on account of time value of money. If the property has been acquired less than three years back, then the profit would be termed as short-term gains and taxed at slab rates applicable. The rate broadly for any amount more than Rs. 2, 50, 000 is 30.6% and for an amount more than Rs. 10 lakhs is 33.99%. There is no indexation facility available in this case.

If the sale value offered to you is less than the rate adopted for payment of stamp duty, as per Sec 50C the stamp duty rate would be taken as the sale value.

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Q) Principal and interest accrued in NRE savings deposits are tax free and fully repatriable as long as I maintain NRI status, regardless of the amount -is this correct?
A) The interest from NRE account is tax-free in India as long as you are NRI and have not returned to India permanently.

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Q) If I invest in Indian Mutual Funds using a cheque issued from my NRE bank account, are the gains taxable?
A) The gains are always taxable whether the original amount is repatriable or not. However, long-term capital gains from equity-based schemes (over 65% equity component) are tax exempt.

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Q) Is it mandatory to have a PAN to invest in Indian Mutual Funds if you are an NRI?
A) You will require a PAN. You will also require a recently introduced ‘Mutual Fund Identification Number’ (MIN)

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Q) Are the gains from trading in Mutual Funds fully repatriable, gross of Income Tax?
A) All capital gains from whichever source are repatriable after taxes, if due, have been paid thereon.

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Q) Can gains from Mutual Funds be transferred to my NRE bank account to maintain NRE asset status to be eligible for tax credit?
A) Yes, but only after correct taxes, if due, are paid.

Financial Planning FAQs

What is financial Planning:

Finances mean money and whatever you do with your money involves financial planning. Individuals have been practicing financial planning for centuries. Every individual who’s in receipt or possession of money have to make decision about the best way to use it. Typically the decision is to either spend it now or save to spend later. Financial planning helps you in making such decisions in a best possible tax efficient manner. Financial planning is a process to determine where you are, where you want to be in future and what you should do to reach there comfortably.
The purpose of financial planning is to make you disciplined in your financial life, teach you to respect your money and treat it properly and also help you get the right amount of money at right time without compromising on your basic expenses and lifestyle.

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What is a Financial Plan?

A)- A financial plan is a written document carries the in depth review of your financial position and guide map that shows you how to achieve your goals and objectives. A financial plan document carries the steps to be taken, protocols and processes to be followed in financial life. It involves cash flow and budgeting, Income Expenditure Planning, Debt management, Investment planning, Risk Management, Tax planning, goal based advisory, Estate Planning (WILLs and Estate)

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Does this mean once financial plan is written, financial planning is over? Or in other words , is financial planning involves only writing of a financial plan?

A)- Not at all. Writing of financial plan is just a starting point. As your financial position impacted by many internal (personal expenses, desires, health, inheritances, family functions and responsibilities etc.) and external (taxes, inflation, economic and job scenario etc.) factors, so your plan has to be timely reviewed, tweaked upon to make the necessary changes wherever required. Financial planning is a continuous process in which a financial planner guide you through your financial life as per the financial plan.

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Who is a financial Planner?

A)- Persons who are Certified (CERTIFIED FINANCIAL PLANNERSCM) registered with financial planning standards board of India and who’s licensee is valid and up to date is a Financial Planner.
Going forward those who are into pure financial planning advisory have to be registered with SEBI under its Investment advisory regulation 2013, this will be an added advantage for the consumer to work with a Certified Financial Planner and Investment Advisor Regulated by SEBI.

Dilshad Billimoria is a CFP since 2008 and will soon be getting her license under I.A regulations for Investment Advisory.

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I have never worked with financial planner before. What should I expect?

Every financial planner works under a process, as laid down by respective financial planning board of the country. And in this process the first step is to establish the relationship between planner and client. A financial planner will give you enough time to get acquainted with the process and formalities. It will always be a no pressure opportunity for you to discuss in details about the goals and other financial issues. After this discussion if you both agree to go ahead then financial planner will get signed a written agreement from you to get you formally into his systems.

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I have seen a few of financial plans, and I find those quite simple. I don’t think this service is worth paying for.

– There are ready made financial plans that you can churn at the click of a button and some of them are free of charge also on the internet. However, there is no backing of a professional to guide you on whether the parameters, risks, resources, goals considered are realistic and need based to your particular situation.

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Can I do my own financial planning?

Yes, you can. There are many software’s, blogs, self-help books available in the market and on internet which will help you get your own financial plan done.
This might help as a first step process and provide some basic information. However, regular monitoring, cash flow arrangements, investment performance, rebalancing, asset allocation, risk profiling , legal issues in case of estate/tax planning need the help of a professional Certified Financial Planner.

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What different products I can expect advice on – Stocks, real estate, bonds, mutual funds etc.? and how much return can financial planning generate?

Financial planner’s advice on your financial life and the proper asset allocation as per your risk profile. They will discuss on the different asset classes be it equity, debt, real estate, ETFs, gold and also advice you on products suitable for your profile.

We at Dilzer, specify in our Investment Policy Statement, that our intention of suggesting investments, is NOT to beat market or provide trading opportunities. The objective is : sustainable growth over benchmark and reaching goals at an average return.

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How often the financial plan should be reviewed?

A- Financial plan is prepared keeping in mind all the possibilities which can happen in future. The review is done annually after evaluation of goals, income expenses, interest rates, inflation rates, new sources of income or expenditure or changed goals.

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How do I get started?

Please send a mail to to get started and understand the benefits of financial planning, financial plan process and implementation with our Services and Fee structure.

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For more details contact us

10 Reasons Why Financial Plans Aren’t Just For The 1%

Financial plans are only for people with so much money, they don’t know what to do with it, right?

Actually, studies show that a comprehensive financial plan can benefit people at all income levels — but not a lot of Americans know this.

Only 31% of financial decision makers in families say they have created a comprehensive financial plan either on their own or with professional help, according to the 2012 Household Financial Planning Survey conducted by the Certified Financial Planner Board of Standards. The Board defines a comprehensive financial plan as one that covers savings and investments; planning for retirement, education, emergencies, major purchases, and other financial goals; and insurance needs.

But few people have plans in place to cover even a part of their finances: The same study showed only 35% of people have a plan to save for emergencies. And only two-thirds have a plan to meet any of six savings goal, such as for emergencies, retirement, a child’s education or a down payment on a house.

It’s too bad those figures aren’t higher, given that the same survey showed that comprehensive financial plans benefited even people at lower income levels.

As Tom Pemberton, a certified financial planner and owner of Charlotte-based DBA Pemberton Financial Planning, said, “The way you get into the higher income bracket is to have a financial plan.”

And don’t dismiss financial plans as being for older people. Pemberton, in fact, recommends financial plans for people in their 20s, to help prevent them from making financial mistakes.

“If you look at people who are financially successful,” he said, “most of them have been making very smart financial decisions all their life. The sooner you start making smart decisions, the sooner you know where you want to go, and if you have a plan to get there, the more likely you are to attain it. Time is the one thing nobody can give us. If you start in your 20s, you don’t have to save that much. The longer you wait, the more you have to save to make that goal.” (He was referring to the fact that, the more time investments have to grow, the less money an individual needs to put away in order to achieve the same returns as someone who gave their money less time to grow. This principle is especially helpful for long-term savings goals such as retirement.)

Here are ten reasons to get a comprehensive financial plan if you don’t have one yourself:

1. It will help you define your financial goals.
Most financial planners will begin your plan by asking you what your financial goals are. For couples, sometimes doing this exercise alone is enough to get the two partners on the same page. “Most people spend more time planning their vacation than planning for retirement or for their financial goals,” said Pemberton.
2. It will help you see whether your goals are realistic, especially for your timeline.
After taking a look at the goals, Pemberton looks to see how you can get there — how much to save, what types of investments to make. “Then, the planner can do a cost-benefit analysis. Are your goals realistic? Are they attainable? Most of us have more goals than financial resources,” he said, adding that time is a huge factor. “It’s usually not that the goal is not attainable, it’s that the timeline is not attainable,” he said, noting that many goals, such as saving for retirement, a mortgage or a child’s college education and paying off debt, take years to accomplish.
3. It will help you see how you can bring your spending in line with your goals. 
Once you know where you’re headed and how long it will take to get there, then you can look at your cash flow to find out if you’re spending more money than you’re taking in. “If you have negative cash flow, there’s no way you can meet your goals,” said Pemberton. The exercise of analyzing expenses often surprises people. “They say, ‘I had no idea I was spending that much onStarbucks SBUX -0.12% or eating lunch out,’” he said.
4. It will show you what money mistakes you’re currently making.
Aside from spending too much, Pemberton says analyzing not just spending but the overall financial picture sometimes exposes mistakes — and easy fixes. Pemberton said, sometimes people look at their credit card debt and say, “I’m paying 18% on interest to a bank. Am I making anywhere near 18% on any of my investments?”
5. It will allow you to measure your progress on your goals.
Once the plan is in place, you can set up measurable goals, such as regularly contributing a specific amount of money toward either savings or debt over a period of time. “Then, I can say a year from now, ‘Did we do what we said we were going to do?’” said Pemberton.
6. It will help you find new ways to maximize your money.
Having an outside expert look at your financial picture might reveal opportunities to make or save money that you hadn’t thought of. Pemberton sometimes realizes that clients aren’t taking advantage of a flexible spending plan at work that allows them to pay for health care expenses using pre-tax dollars. He said, assuming their tax bracket is 28%, “I’ll say, ‘Why aren’t you putting money in your flex spending? If I told you you could buy everything at a 28% discount, wouldn’t you want to?’ And they say, ‘Absolutely.’” Other missed opportunities he sees are passing up the company 401(k) match, which he calls a “guaranteed 100% return on investment.”
7. It will help you identify risks you hadn’t thought of.
Part of a financial plan is looking at risk capacity: What is your risk of becoming disabled and being unable to support yourself or your family, or dying early and saddling your family with an un-manageable mortgage payment?

Pemberton recalled a couple that came to him on top of all their finances. “No will,” he said. “In the state of North Carolina, if one of them was to die and had assets in their name alone, half of those assets would go to that person’s parents, not to their spouse.”

8. It will make you more confident with your money. 

According to the CFP Board survey, 52% of those with a plan feel “very confident” about managing money, savings and investments, while just 30% of those without do. Pemberton saud that when he’s finished plans for people, they generally feel in control of their finances, and they also feel a new sense of discipline. He said they feel, “I know what I need to do to achieve my goals. I don’t feel like my life is out of control anymore, but I’m in control.”

9. It will help you build wealth. 

The CFP Board survey showed that those with a plan also have more money saved and are more likely to pay their credit card bills in full. Notably, even those who make less than $25,000 are more likely to pay their credit card bill if they have a plan than people who make from $25,000 to $49,999 and don’t have a plan — 41% to 26%.

10. It will help you live more comfortably.

Those with a plan are also more likely to say they are living comfortably — 48% to 22%, according to the CFP Board survey. Even more remarkable is that those with a plan making between $50,000 and $99,999 are more likely to live comfortably than even those making $100,000+ without a plan: 50% to 46%.

While you don’t necessarily need to hire an outside person to create a financial plan for you, a lot of people do so to save themselves the time and energy of sifting through a lot of advice, some of it potentially contradictory.

But, as you’ll see, “financial advisor” is a loose term that covers all kinds of people who say they can help you with your money. How to choose among them? Here are ten questions to ask a potential financial advisor.


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10 Questions to Ask Your Financial Advisor

1. How do you charge for your services, and how much?

If you didn’t see this information on the planner’s web site, ask whether there’s an initial planning fee, whether they charge a percentage for assets under management, or whether they make money from selling you a specific product. Not only should you know how much the service will cost you, but it can help you determine whether they have an incentive to sell you things.

2. What licenses, credentials or other certifications do you have?

Of the four main types of financial advisors, the certified financial planner (CFP) designation is harder to achieve than Chartered Financial Consultant (ChFC), because the former requires a comprehensive board exam; the latter, however uses the same core curriculum. If you want someone to manage your money, then look for a registered investment advisor (RIA). If you have a high income or a small business owner, you’ll probably want a certified public account (CPA), who can offer you advance tax planning. The personal financial specialist (PSF) certification is usually obtained by CPAs who want to demonstrate they can help clients with comprehensive financial planning.

3. What services do you/does your firm provide?

Implicit in this question is also what assistance the advisor will not give you. “Some people are just investment advisors and only provide you advice on your investments,” says Bera. “Other people do comprehensive financial planning around retirement, insurance, estate planning and tax planning.” Go with someone whose offerings suit your needs.

4. What types of clients do you specialize in?

Some financial advisors have a niche, says Bera, and if you have a specific interest — such as charitable giving or socially responsible investments or if you’re a newlywed or recently divorced — you’ll want to find one that concentrates in that area too.

5. Could I see a sample financial plan?

There is no one set structure for a financial plan, which means there is wide variation. “Some people might give you 50 pages of stuff you don’t understand like charts and graphs, and another planner might provide a five-page snapshot of your financial situation,” says Bera. “With a sample, you can say, ‘I really want that in-depth analysis,’ or ‘I don’t understand that.’”

6. What is your investment approach?

If you have a strong preference for a particular philosophy, ask the advisor what his or hers is. For instance, if you prefer to use low-cost funds, you can ask whether they plan to used actively managed funds or passive investments. Wacks gives an example of the kinds of differences in investment philosophy that can arise: “I say to the client, ‘I’m not here to make you a lot of money. If you want someone to do that, and trade stocks back and forth, then I’m not the person. If you’re looking for someone who makes investments consistent with your risk tolerance and goals, then I can help you.’”

7. How much contact do you have with your clients? 

“Some of planners hold an initial planning meeting and then you see them once a year, and that’s all you get,” says Bera. Others might have quarterly check-ins. “Some clients just want to go over everything once a year and then they’re good. Others are looking for more support, so it depends on the amount you want to pay, and how involved you want your planner to be. Are you a delegator? Or do you expect your advisor to explain things to you?” If you’re not sure of what you’ll be comfortable with, the J.D. Power & Associates survey found that investors contacted 12 or more times a year had the highest rates of satisfaction with their advisors.

8.Will I be working only with you or with a team?

This question will also help you see how often you’ll be in touch with your advisor. “Some will say, ‘I’ll meet with you once a year, but Gina will reach out to you regularly and is my right hand person and does a lot of data gathering for me.’ Some companies have a team approach rather than an individual approach,” says Bera, adding that one isn’t better than the other. “It’s really whatever your preference is. But I wouldn’t want someone to get into a relationship and say, ‘I only see my advisor once a year, and I thought I’d be seeing him more often.’ Then others really like the team approach because they know if their planner is on vacation, they can still get an answer right away.”

9. What makes your client experience unique?

“Basically, ‘Why do I want to work with you?’” says Bera. “And people should be able to answer that.” This will also give you insight into whether their strengths are the ones you seek in a planner. For instance, she would tell clients, “I’m your financially savvy best friend,” and explain that her focus is on using their money to match their values. This pitch would appeal to some clients, but not ones who, for instance, are out to maximize returns in the market.

Finally, there’s one last question you want to ask of yourself after meeting with a potential planner:

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10. Did he or she ask me questions and seem to be interested in me? 

“Does he or she talk 90% of the time?” says Wacks. “If it’s more like 60/40 and he has asked you how he or she can help you, that’s really important. Financial planning about looking at the person’s individual circumstance instead of punching in some numbers — it’s based on the client’s goals, financial background, what they believe about money, etc.”


5 Basic Money Errors Retires Make

These are five basic money mistakes that retirees still make.

1. Failing to establish or follow a budget
Although it is one of the most elementary financial mistakes, living without a budget is a common pitfall for retirees.

“People don’t track their spending,” says Mari Adam, a certified financial planner in Boca Raton, Fla. “They have no idea how much they spend. Overspending is the most common problem we see.”

Andy Tilp, a certified financial planner at Trillium Valley Financial Planning in Sherwood, Ore., says that many of his retired clients have no sense of their cash flow and aren’t aware of how much money is coming in and going out each month.

“Eight out of 10 times they don’t have that,” Tilp says. “I’ve actually had clients get mad at me. It’s a real wake-up call. Because if you don’t know your expenses, there’s no way to really understand if you’re going to be able to continue a lifestyle.”

2. Not understanding inflation
Underestimating inflation — or worse yet, failing to understand it — can easily deflate a retirement plan.

“I think one of the biggest errors a retiree can make is not planning for inevitable inflation,” Tilp says. “It is statistically likely that a person age 65 will live at least two more decades. During that time, the purchasing power of an individual’s money is halved assuming a historical 3 percent inflation rate.”

Not understanding inflation can lead retirees to overoptimistic decisions to draw from their retirement resources early, he adds.

“Because there is a lack of understanding of the impact of inflation, individuals often start their retirement income sources as soon as they can without understanding the consequences,” he says.

3. Drawing on savings too readily
Whether they understand inflation or not, a lot of retirees make the mistake of dipping into their Social Security benefits or retirement accounts as soon as they possibly can.

Too often immediate gratification trumps long-term planning and patience, Tilp says.

“The common refrain is ‘I’m going to get the money now,'” Tilp says. “This applies to Social Security, pensions and annuity payments. These income sources are likely to continue to grow to a certain age if they are left untapped. Thus, by waiting, an individual can realize much more income later in their life when it may be needed to offset health care and possibly elder care expenses.”
4. Loaning essential funds to family members
Loaning or giving money to family members, particularly if that money is critical to your retirement budget, is yet another way to invite financial threats into your retirement.

Adam has seen clients dip into their nest eggs to pay rent for an adult child or private school tuition for grandchildren.

“Maybe 10 percent get into trouble helping adult kids in their 30s and 40s,” Adam says. “Sometimes, it’s just paying rent. Usually the kids are underemployed.”

Some retirees may be tempted to help adult children who are having financial difficulties following a divorce or break-up. Josh Koehnen, a certified financial planner in San Diego, Calif., knows a retired couple who decided to draw from their savings when a daughter came to them after a broken engagement.

After exploring several options, they decided to pull money out of their nest egg in order to add a room addition to their home,” Koehnen says. “They now have their daughter and two children living with them in the room addition. The construction costs ran way over their initial estimates and the dent in their nest egg has caused them to really tighten up spending.”

5. Overlooking taxes
Failing to consider the impact of taxes, including those incurred from retirement account distributions, can lead to costly surprises for retirees.

Adam knows a retired couple who failed to consider taxes and paid a hefty price. The couple decided to use money from a 403(b) plan to finish buying a house and ended up with an enormous bill from the Internal Revenue Service.


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