Whats your theme?

Every year, we have Margi Ganpati decorations adorning my home street. The decoration gets more and more lavish every year. It is fascinating to know that every festival in India has its own decorations and theme associated with it. On Republic day, the theme is to dress up in tri color of our country. On Valentine’s Day, we dress up in Red and for our auspicious occasions, we want to dress up in bright colors. Similarly there are mutual funds which make investments, which match their investment theme. Hence, they are known as ‘Thematic Mutual Funds’. Today, we would discuss about the background of these funds. We can call it an extension to the sectorial funds.

Common features of the Thematic Funds

a.    Very high risk – the AMCs place their investment bets on any particular goals believing it to outperform the broader index as a whole. So, believing in the strength of the particular theme, the fund manager makes all his bets across the same sector to gain maximum returns.

b.    Mostly Correlated Sector exposure – Thematic funds are usually investment made in same or allied industries. For example, if the theme is betting on gold theme- then the related mining, refining and grading companies are expected to gain profit from it. It can even be country based or a particular region based investment.

c.    Cyclical in nature- the funds under thematic funds could be cyclical in nature. It has its own ups and downs, which is in addition the broader index movement. They can be usually called the fruits of the season. They are expected to be fundamentally strong with the entire external environment favorable to their working.

d.   Limited investment options for a fund manager- Even if a particular segment of the thematic segment is less profitable over other, the fund manager has no scope of diversifying the investment risk.

e.    The average time frame of thematic mutual funds is more than 5 years depending on the gestation time of underlying theme. The generated returns can evaporate if we don’t exit the investment at the right time. 

Performance of few of thematic funds in past 

 

(Source- valueresearchonline.com) 

So, let’s all wait for flavor of the upcoming week of the union budget bringing in more ideas for thematic funds. 

Thanks and Regards

Team

Saarthi Financial Planner

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Email: saarthifp@gmail.com

BHIM- the digital revolution

BHIM App(Bharat Interface for Money) is a an app started by the government as result of our PM Mr. Narendra Modi efforts to make India transact cashless. Few weeks before we had discussed the working of a UPI system, BHIM is one of the simplest form of UPI app started. It is called BHIM after Dr. Bhimrao Ambedkar, one of the foremost person working for upliftment of dalits and poor people.

Simple features of BHIM

• BHIM works all major banks and there is no need to download multiple applications to transact online.
• BHIM works on funda of IMPS (Immediate Payment Service) . It transfers money immediately.
• It is not necessary to register the payee beforehand
• BHIM is available on all 365 days across 24x7
• BHIM doesn't require the user to remember the bank details of the payee just the UPI address is required.
• In case, if the payee doesn't have UPI based payment system, it is possible to transfer money using mobile number or scanning the QR code.
• BHIM can operate without internet connectivity to transfer and receive money.
• BHIM is over the time expected to authenticate using thumb prints over Aadhar details.
• BHIM is designed with a simple interface keeping in mind the needs of a simple village person.

How do I start?

• Download the BHIM app from google play store. It is currently only available for Android users.
• Follow the instructions which are then made available , once the app is installed. It is available in various local languages.
• It will then verify your mobile number.
• After this, a 4 digit password is to be registered which is required in every future transaction.
• After that select the bank, where you have your account. The app will automatically show the account number linked with the mobile no for that bank.
• Select the account number and you are started.

Now in future to transact, you just need the UPI details of the person to transfer the money. Usually the default UPI address is the mobile number of any individual. Almost all banks currently support BHIM application. For the complete list, click on the link as follows:- http://bhimapk.com/
 Our intention at Saarthi is to make all our readers aware of the latest happening in the digital transaction world. If we were to follow, our PM, then he sees our country going cashless in next 5-6 years. So, it is best to adopt the required application at earliest. Chota Bhim, Bada Karmveer.

Thanks and Regards
Team
Saarthi Financial Planner
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Email: saarthifp@gmail.com

Plan Your Business Succession

Last evening, I was watching the rerun of the recently released “The Intern” on one of the movie channels, wherein a young woman who meet success in a short span at a very young age finds herself incapable to manage the growing business singlehanded. However, she was reluctant to bring in a CEO to guide her run the show more smoothly attaching a lot of drama to it.

It is not just a story but infact an alarming truth. In India,  If you want to eat fruits of our sown tree you need to take good care of it and even nourish on time. Similarly, if you want to ensure that the business set up by you is successfully transferred to your next generation then it is necessary to plan for its succession on time. As per the recent survey of Family Business Survey, 2016 conducted by National Bureau of Economic Research Family Business Alliance 43% of family run firms do not have succession plan in place and only 12% carry on business till 3rd generation. Like everything business also needs fresh thoughts and different approach to do things. So, better plan for this transition on time.

Problem areas of succession planning in business

• Business is not just about profits or growth; it has deeply rooted values, culture and entrepreneurial style. The family run businesses usually face a road block when it has new generation talking about change, technology and resources.
• Lack of strategic thinking. The missing component mostly in any family run firms is the creation of strategic thinking. Thinking that is dedicated to long term. There is a lacuna for understanding the transition from current level and expected level of business growth. The perspective of growth is different for everyone.
• Overlapping of personal and professional lives makes succession planning difficult. Sometimes the domestic restraint overpowers the important succession decisions.
• Absence of rightful successor. It is quite possible that your family is not interested or incapacitated to run your business.
• Difficulty in delegating work and sharing the load. The more an individual grows a successful the lesser he trusts the younger generation working capacity.

Simple probable solution to plan successful business succession

• Develop a collective vision, goals and objectives of business.
• Make a simple list of skill set of all probable succession family members. Also, list out the probable areas of shortfall of skills. Try to do it with consensus of current management.
• Identify the potential threats in business and prepare the combats to face it. Once, you have identified the mechanism to face the threats, it is easier for the younger lot to plan their current situation.
• Bring in the fresh experience from outside. It is necessary to bring a third party in the family run set up to bring in the required professionalism. Although, it might take time to accept a stranger in business but it is the only way to scale and have a neutral approach to things.
• Start delegating roles in your presence so that work doesn't stop in your absence. Switch from a role of Active member to active Observer. Let there be mistakes in near term but in long run it would be improved.
• Prepare a written document expressing your idea of succession plan for all the family member.Discuss it with all the beneficiaries.

If your family is not interested in your business

• If none of your family member is interested is in continuing your business, it is best to either planning a sell out to a suitable competitor on your death or when you want to quit it. The proceeds can then be distributed in your estate planning.
• If you are keen to maintain your business name, even after your demise, you can plan to create trust to run it and appoint a suitable manager/ CEO to run it. Please ensure the person so appointed is young to outlive your age.
• If your spouse is dependent on your business income, it is best recommended to make them actively aware of the business working. If the spouse is incapacitated to run it after you, it is better to sell it and transfer all amounts to her.
• If multiple homes are dependent on the business,  please ensure you have planned well for the legal dues of your staff and labour. This would ensure co-operation from them as well as loyalty.

In case of minor children, a trust form of business ensures safeguarding of business till your children become adults.

Business is like your own baby, as you ensure your child gets the best, so should your business. Plan to grow it, expand it and on suitable let the legacy go to a more stable hand. It is wrong to let the once successful business die away in shambles. Plan for your succession and plan it soon.

Thanks and Regards
Team
Saarthi Financial Planner
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Email: saarthifp@gmail.com

Plan your Financial Calender

Thanks and Regards

Team

Saarthi Financial Planner

Facebook || Twitter || Blog || Google Plus || Blogger

Email: saarthifp@gmail.com

Balance your Assets to know Actual worth

When we ask any client if he is aware of his total outstanding loan amount across different categories of liabilities, his usual response is I will check with my bank and get back to you. Or else they give a rough estimate of paid EMIs. Similarly if we ask their total personal net worth there is a blank look on their face expressing their ignorance on the topic. As a financial planner, one of important aspect we present to our client in his final plan is his net worth. It is a statement of his net assets. Although in our practice, we avoid personal assets i.e. assets for personal use like home, jewellery, designer art etc. but it does form a part of your net worth if you are ready to part with it if financial needs arises. So let’s today discuss a simple approach to record our balance sheet.

 Some of common points to record your assets and liabilities 

1. Follow the practice review assets on regular basis. Be aware of their maturities dates and valuation changes.
2. Record Assets at their cost price. Only if you have done assessment of the same from a third party then feature them at market value. This is particularly true for real estate and precious stones.
3. Valuation of capital market instruments should be done on market value except for debt instruments (like bonds, bank deposits)
4. After sale of asset, the sale proceeds can be split as cost and profit (if any). So automatically, the cost gets reduced from balance sheet and profit is added to your cash/bank account. Over the years, your balance sheets balloons up with increasing investment either in business, advance given or capital markets.
5. The cash bank balances are fluctuating and so should be not considered as long term asset. It is grouped under current asset or spendable source.
6. There is no point of adding personal receivable in the assets if the loan is given in personal capacity without any fixed tenure of recovery.
7. In liabilities, ignore the total loan amount and only worry about the outstanding payment.
8. The loans can have a section for likely loan as contingency loan (It stands for likely to happen but not still occurred) – like giving a share to your siblings as part of your father’s will or wish- to be fulfilled by you.

Beyond this many times, our small proprietary business owner clients insist of adding their business goodwill and real estate in the personal balance sheet. This is only allowable if you are ready to dissolve your business and get rid of your business assets. Until then only tangible business assets can be shown as your recoverable portion. Further when you add asset, you should consider all the investments put by you in different family members’ name and it a family net worth including spouse, children and dependent parents. Also, this style of accounting is only for Personal finance simplification and would not necessarily match with your CA’s books. There is no fixed date to review your balance but it preferred to be done following financial or calendar year. So, go ahead and get a hang of your assets and liabilities. BE ALERT AND BEWARE.

A snapshot of recording your assets and liabilities 

Note- the above format is only a recommended one with popular list of assets and not an exhaustive one.

Thanks and Regards

Team

Saarthi Financial Planner

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Email: saarthifp@gmail.com