Exchange Traded Funds (ETF) – What are ETFs and How to Invest in them?

Exchange Traded Funds (ETF) – What are ETFs and How to Invest in them?

The Indian economy has a plethora of investment options these days with Exchange Traded funds (ETFs) being a very lucrative alternative. Last five years has witnessed a phenomenal 30-times volume growth in the domain of ETFs, attributed to pension funds and increasing investor awareness.
Seventeen asset management companies have launched ETFs based on Nifty50, which contributes to 49% of the total market share, as of September 2020.The fund manager purchased stocks from Nifty50, which allowed the fund to offer returns, similar to those of the index. The total AUM of ETF is pegged at INR 2.07 lakh crore as of 31-Aug-2020, out of which nearly half of it was focused on ETFs that were based on the Nifty50 alone.However, retail investment is quite low on this product compared to the mutual funds, which is one of the main retarding factors to its growth.Hence more awareness needs to be created on how to

invest in ETFs to foster an upward trending growth curve. Let us explore an investor’s guide to fine out how to invest in ETFs.

 

 

What is an ETF (Exchange Traded Fund)?

ETFs were launched in India in December 2001, though the fund flow in the ETF industry was very scanty till August 2015. Research shows that the effective growth in Nifty50 AUM and in the industry has taken place only in the last five years.

An Exchange Traded Fund (ETF) is basically a fund that pools in funds from several investors and can be traded on the stock exchange or the secondary capital market, similar to shares.

You need to have a Demat account and a Trading account to start investing in ETFs if done via an investment firm. It is a passively managed fund with a designated fund manager and has a Net Asset Value (NAV) like a mutual fund.

Though they are traded like stocks, their individual price is not determined by the Net Asset Value (NAV), instead by the demand and supply mechanism operating in the market.

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Since ETFs track benchmark indices, their returns are closely linked to market movements, to overcome most mutual fund investment schemes. The buying and selling of the ETF units are usually done by any registered broker at any of the recognised and listed stock exchanges in India.

Since the units of the ETF are listed on the stock exchange and the Net Asset Value (NAV) varies according to the market sentiments, they are not traded like any other normal open ended equity fund. 

The investor has the liberty to trade in as many units as feasible on the exchange, without any kind of restrictions being imposed on them.

To state it very simply, ETFs are investment funds that track indices like the CNX Nifty or BSE Sensex, etc. Hence, when you decide to invest in the shares of an ETF, you are investing in the shares of a portfolio that tracks the yield and return of its native index.

Investing in ETFs does not entail it to outperform their corresponding index, rather replicate the performance of the Index as they depict the true picture of the market. 

 

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Are Exchange Traded Funds (ETFs) a Lucrative Option for Investment?

Exchange traded funds (ETFs) are a safe bet for beginner investors due to their innumerable benefits like higher daily liquidity and lower fund fees as compared to the mutual funds. Here’s a FREE course on mutual funds

Few factors like the wide range of investment choices, low expense ratios, high liquidity, option of diversification, low investment threshold etc. make them an attractive investment option for the individual investors.

These special attributes render the ETFs to be perfect options for adopting various trading and investment strategies to be used by new traders and investors.  ETFs are a lucrative investment option due to the following reasons:

 

  • Diversification of the portfolio – 

In today’s volatile market, diversification of the financial portfolio is mandatory and hence the need for ETFs, which can introduce investors to a huge variety of market segments.

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You can diversify your mutual fund portfolio by investing in Gold ETFs, by using the price of physical gold as its benchmark. You can also diversify your wealth among ETFs covering different types of investments like commodities or bonds.

 

  • High Liquidity due to absence of a lock-in period 

Investment in Exchange Traded Funds help in portfolio diversification along with providing liquidity. They are open ended funds with no lock-in period, which gives them the liberty to withdraw their holdings according to their requirement.

Since there is no holding period, investing in ETF is a lucrative investment option.

 

  • Cost Efficiency due to Passive Management– 

The expense ratio for maintaining the ETFs are comparatively lower as they are not actively managed like majority of the mutual funds.

Since there are no management fees or commissions involved, the incremental value of the overall fund is usually increased.

An ETF held with a low expense ratio can add on to the pay-outs if held for very long. For example, index ETFs just track the index, so the portfolio manager does not need to manage the fund. This calls for a lower management expense ratio (MER).

 

  • Single and transparent transactions – 

Investing in ETFs require you to make one single transaction similar to owning a mini portfolio.

Therefore, when you have to track the performance of this portfolio, for example if you have invested in a Gold ETF, you would need to track the price movements of gold only as a daily commodity, which is much easier for the investor.

Also most of the ETFs publish their holdings on a daily basis, hence you can find out their holdings, their relative weightage in the funds and if there has been any movement, thereby fostering transparency in the financial chain..

 

  • Offer flexibility to buy and sell – 

Unlike mutual funds, ETFs can be purchased and sold from an investment firm or at the stock exchanges on a daily basis, similar to the intraday trading mechanism.

They have the flexibility to be bought short and sold at a profit margin in a day during the market operating hours, at the current market price at the time of the transaction.

 

  • Professional Fund Management – 

Though ETFs maintenance or operation costs are pretty low, they are very professionally managed.

 

  • Tax Efficiency – 

ETFs are considered to be equity oriented schemes, which entails them to follow a taxation norm similar to any other equity related investment scheme.

 

Types of Exchange Traded Funds

With several options among ETFs available in the financial markets these days, consumers tend to get perplexed in which to invest.

Hence there are 4 broad categories of ETFs that one can invest in, namely:

 

  • Equity ETFs – Equity ETFs usually track the movement of sector or industry specific stocks. Here the performance of the index or the specific sector is replicated by investing in stocks accordingly.

 

  • International exposure ETFs – There are few ETFs that track stock indices of foreign stock markets. Since they give the investors an opportunity to gain exposure in some international markets, they are actively involved in weaving the growth stories for few economies.

 

  • Debt ETFs – Few exchange-traded funds try trading in fixed-income securities.

 

  • Gold ETFs – Gold investment is always considered a great hedge against currency fluctuation and a volatile market. However, investments in physical gold is faced with several concerns like quality, security, resale, taxation, etc. Hence, Gold ETFs are a safe option where you can invest in gold bullion, thereby having gold in your portfolio without the risk or fear of investing in physical gold.

 

Factors to be kept in mind before you decide to invest in an ETF

Today’s financial market is flooded by too many options even within the ETFs. There are four factors that one must consider before you decide to invest in an ETF:

  1. Trading Volume of the ETF – You should chose an ETF with higher trading volume if you need liquidity and a good price for the units traded on the stock exchange.

 

  1. Class of the ETF – Since ETFs are of four types, equity, international, gold and debt, once a category is finally selected, its sub category also needs to be decided. The specific sector ETF or their market capitalization needs to be focused upon if you are investing in an equity ETF.

 

  1. Lower Expense Ratio – Usually the expense ratio of an ETF is much lower than an actively managed fund. But even then many fund houses offer more discounts on the expense ratios to attract more investors, thereby increasing the chances of higher returns.

 

  1. Lower Tracking Order – ETFs usually track an index as they invest in securities that comprise the index in a manner that the returns are almost similar to those offered by the index, thereby making some differences feasible between the returns offered by the index and the ETF. Tracking error usually identifies variance in the performance of the ETF in comparison to the underlying index. If the tracking error is lower, the returns of the ETF will be closer to that of the index. Therefore, you should always invest in ETFs with a lower tracking error.

 

Comparison between Mutual Funds, Stocks and ETFs

A detailed study on ETFs has been quite helpful in understanding the market and drawing a comparison between them as against the mutual funds and stocks:

Mutual Funds Stocks Exchange Traded Funds
Definition A financial set up comprising of a pool of money collected from many investors to invest in different securities like bonds, stocks, money market vehicles and various other assets. The investment capital raised by a company through the issue of shares, thereby signifying some ownership in that company for the investors. An exchange traded fund (ETF) is an asset class consisting of a collection of securities like stocks,  that track an underlying index or a specific sector.
Risks Involved Though the exposure is diversified, there are market specific risks. Very risky proposition as the performance of the stocks are directly proportional to the company’s performance.  Though the asset class is diversified, it however carries market related risks.
Trading Time Mutual fund trading is done only once a day after the financial market is closed. Can be traded throughout the day. Can be traded throughout the day.
Degree of Control Not very highly regulated or controlled investment. Very highly controlled investment. Higher control on these type of investments as compared to mutual funds but lesser than stocks.

 

Tax Implications on ETFs

The taxation policy applicable on ETFs are quite unique as compared to the tax treatment meted out to mutual funds.

Read more about taxation in mutual funds 

The index ETFs and sectoral ETFs are considered as equity-oriented schemes from the tax perspective. They have the unique selling proposition of creating and redeeming shares with in-kind transactions, which are not rendered as sales.

Since there is no sale involved, they are not taxable.

However, if you plan to sell your ETF investment, this transaction will be taxable. The tenure of holding onto this ETF investment will decide if it was a short-term or long-term profit or loss.

Therefore, research reveals that short term capital gains from ETF units held for less than one year are taxed at 15% vis-a-vis the long term capital gains on ETF units being held for more than one year, being taxed at 10% without any indexation benefit.

If you are a new investor planning to enter the Indian financial market, ETFs consisting of a basket of securities offer a well-diversified approach. They are a much better proposition than purchasing the stocks directly for first time investors.

You should do a thorough research on the investment options available and devise a suitable investment plan based on your financial objectives, tenure to invest, intricacies of investing in ETFs and your risk tolerance level.

Since these funds are passively managed, they are cost efficient and usually match the returns offered by the index.

Also if you are an aggressive investor, ETFs are still a good option for stable investments if utmost planning is done well in advance.

Thus, with adequate knowledge and research, all the first time investors should allocate some of their funds to ETFs for a better wealth creation.

 

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Beginner’s Guide to Investing in Gold

Beginner’s Guide to Investing in Gold

The economy in current times has varied investment options. If you have decided to make a foray into the world of investing, there are an incredible array of options, ranging from stocks to equities to mutual funds and gold funds, to name a few.
Since the financial market is very dynamic, newer stocks could be volatile and hard to realise its returns.
However, gold investment is a very lucrative investment option as it can reap better returns especially in the long term and it is one of the world’s oldest commodities, which instill people’s trust more readily than the other asset forms.
It is considered to be the best insurance policy and hence an essential component of your financial portfolio. It is usually believed that one should consider allocating about 5% to 15% of their portfolio in gold or gold oriented investments.So let us see here, how to invest in gold especially for beginners. You should know varied nuances on how one should go about making an investment in gold.

 

Gold as an Alternative Investment Option

The people of India have been investing in gold for several reasons like cultural and religious, since time immemorial.

But in today’s dynamic market, gold investment as a very good investment option is considered to be quite favourable as well.

It has a long term store of value i.e. it is a valuable asset that definitely maintains its intrinsic value intact without depreciating over the years.

If you ever face any economic crisis, gold comes in handy as it can work as a safety deposit box thereby making it superior to the other investment options.

It is also considered an attractive means of investment due to its consistent outperformance of the currency value and always has a strong presence in the market, even if the market collapses.

A lot of investors also like the fact that gold is a tangible asset form, wherein you can actually hold the gold ornament or the gold coin in your hand. So once you hold it in your hands, the feeling is surreal and you realise that the investment is real.

While on the other hand, other assets like bonds, stocks and mutual funds are usually given to the investor in the form of a piece of paper.

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Liquid money usually involves a ‘promise to pay’, though gold does not require any such promise. In the last 3500 years’ history, gold prices have never been pegged at zero, thereby making it the only real financial instrument that is not an investor’s liability at any point of time.

The guide to Investing in Gold clearly states that gold helps to diversify your financial portfolio, thereby protecting the portfolio against any market volatility.

Gold is believed to have a low or a negative correlation with the other asset classes, like stocks and equity.

Even if gold may seem to be a volatile investment, that should not discourage you from making the investment.

History states that gold always increases in value and even if other traditional investments fail or falter, gold still reaps returns. Gold also offers good returns when the SENSEX generates good profits.

Gold investment is very lucrative as it provides a hedge instrument against inflation. The currency value usually drops as the inflation rates increase for a nation.

However, research states that gold prices have almost doubled in the last five years despite a rise in the inflation rates. In India, since inflation rates usually tend to transcend the interest rates, investment in gold is considered a good hedge against inflation.

 

Buying gold is also very essential in today’s volatile market due to its liquidity, which means that gold can always be bought and sold instantaneously.

If the need arises, you can sell all the gold stocks as they are highly liquid in nature. Even though the US dollar might rise or fall, the gold value is retained as it is, because it is placed in the global marketplace.

You do not need to possess any specialized knowledge to buy gold, it is fairly simple and straight-forward, thereby rendering it as an easy investment option for all the investors.

However, for investments in other stocks and mutual funds, you need some knowledge about the financial market volatility to make the right decision.

Here’s a complete guide on How to Buy Mutual funds in India .

Different Ways to Invest in Gold

Purchasing jewellery and ornaments is the best option to invest in gold, as witnessed in historical times. Several religious and traditional customs during any occasion like a marriage, engagement ceremony, the birth of a child in the family was definitely an opportunity to make a gold purchase.

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However, different ways to buy and own gold as a financial instrument have emerged now with the advent of paper gold, gold funds and physical gold like jewellery, gold bars, etc. to diversify your portfolio.

Hence you as an investor can get confused at times, with the type of gold you should buy and the place from where you should buy. You can invest in stocks in gold mining, refining and production.

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Given below are a few gold investment options that you should consider before taking the plunge.

  • Digital Gold Investment – Digital gold investment is the most cost-effective and lucrative means to invest in gold online. This way you can buy as well as sell gold in small fractions in absolutely no time, with a bare minimum of INR 10 too.The digital gold is usually backed by physical 24-carat gold and is linked to the actual real-time gold price movements. Majorly the companies offering to sell digital gold ensures that it is stored in properly secured vaults for insurance.

    Digital gold investment can be sold at any time and the funds will be credited to your account within two business days. The digital gold has zero making charge unlike the other jewellery or other forms of physical gold options and you can view your assets online.

    Also, there are a few digital gold platforms that allow you to possibly convert them into physical gold on public demand.

 

  • Gold Bars or Coins – Many investors invest in gold bars or coins as they do not require any skilled artistry and hence no making charges are levied on them.

    These bars and coins are easily available at the banks, online shopping or e-commerce websites, jewellers and many NBFCs, i.e. non-banking financial companies.

 

  • Gold Sovereign Bonds –   Gold Sovereign Bonds one of the safest ways for digital gold investment and are issued by the Reserve bank of India (RBI), on behalf of the Government of India.There is a lock-in tenure of 5 years for these bongs with the overall period being 8 years and annualised yield of a rate of interest of 2.5% p.a.

 

  • Gold Mutual Funds – Gold Mutual Funds usually invest in many gold reserves either directly or indirectly and include stocks of companies associated with mining and gold production, physical gold as well as distribution syndicates.Their performance is highly impacted by the gold price movements in the country.

 

  • Gold Exchange Traded Funds (ETFs) – The Exchange Traded Funds allow you to trade gold on the stock exchange while having both the pros and cons of investing in ETFs and the advantage of investing in gold.Investors with a smaller risk appetite often choose a gold ETF as it is a smaller investment compared to the gold bullion, while the broad exposure can minimize your risk. Investing in gold as an ETF does not require the gold to be stored as a physical commodity.

 

  • Gold Savings Schemes – There are various schemes available to help people make gold investments in instalments.There are a few predetermined amounts that you can deposit with the jeweller every month for a certain period. Once the period is over, you can buy gold from the same jeweller at a value equivalent to the amount deposited plus a bonus that is offered by the jeweller and can purchase gold at the ongoing gold price on maturity.

 

  • Jewellery – Indians have an emotional connect with gold jewellery, be it for traditions or any auspicious occasion.Since it is a valuable metal, its safety is very vital to the investors.

    Also the making charges can go up to 25% depending on the design which is recoverable even when you plan to sell the jewellery.

 

How or Where to Invest in Gold?

If you are wondering the right market place to buy gold bullion, a government mint connected gold dealer or seller is the best place to ensure that you receive the real gold. You can buy it physically or online and any currency can be traded for gold bullion.

But if you are procuring gold from an unknown source, its purity certificate should be obtained.

E*TRADE can offer future contracts at a reasonable price, where gold futures can be traded only during certain months and at certain times during the day. You can take a short position if the commodity is sold at a lower price later.

If you buy gold in anticipation of a price rise, you can assume the long position. Research states that futures contracts can be chosen for more financial integrity, flexibility and leverage, that you can get from trading in physical commodities.

 

How to Determine the Price of Gold in India?

Gold price is impacted by demand and supply. As the demand for gold rises, prices increase and when the investors sell gold, the price drops due to excessive supply.

Movement in gold price behaves very differently than the other commodities, as the precious metal inculcates trust.  When the other commodities’ performance decreases, demand for gold increases as people believes that the gold value will be intact.

This increased demand causes prices to soar higher thereby manifesting the desired effect and rekindling the trust in the yellow metal.

During an economic recession, a lot of panic is created amongst investors as stock markets crash. But people keep their focus on gold intact and the “gold rush” boosts gold price, thereby imbibing more investments in gold or gold stocks.

 

Tax Rates for Gold Investments

You should keep yourself well updated of the several taxation norms on gold, applicable in lieu of the profits that have been earned from the gold investments. You attract the capital gains tax in India when you sell gold.

In case the gold is held by you for less than three years, the returns earned are classified as STCG or short term capital gains and the taxes levied on it will be in accordance to the tax slab that is applicable to you.

In case you stay invested in the gold fund for a period of more than three years,  the profits on it are called LTCG or long-term capital gains and are levied tax at a flat rate of 20%.

 

The Road Ahead for Investing Gold in India

Although the yellow metal’s price had plummeted from 2011 to 2018, 2019 saw some price correction, after which the pandemic driven India again saw a huge increase in the price of the commodity.

There is no certainty that this trend would continue but the movement in price will certainly impact your decision making.

There are also other factors that have to be kept in mind like the economic and political,  geopolitical turmoil, while the future road is paved.

The dynamism in gold value makes them a not so favourable investment option for people who are quite anxious about the daily market performance.

So if you can handle a dynamic ride that entails such risky moments but ensures a substantial potential payoff at the end of this journey, then only you should take the initiative to invest in gold stocks.

Investment in gold is considered a long-term investment as it grows in value over time, though short-term investment is more volatile as the returns fluctuate a lot.

Based on the current and future economic conditions, gold is attractive in both the long term and short-term, but adequate research needs to be done to decipher if this is the right investment option for you.

If you have decided to move ahead to make an investment in gold, you should consider your financial objectives, risk-taking capacity, tenure and the investment horizon apart from using this beginner’s guide as a ready reckoner manual.

Hence, investing in a gold fund is very lucrative to strengthen your financial position for the long term.

If you are looking for a certified financial planner, feel free to reach out to us for a FREE financial planning consultation.

 

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Structured Products

Structured Products

Markets can be unpredictable and volatile. You may sometimes hesitate to invest out of fear of losing the capital.Hence, spreading risk across or diversification is an important part of investing. If you are looking out for a financial product that can offer you diversification and capital preservation in order to meet your unique risk-return objectives, you can consider structured products as an investment option.

A structured product is a result of financial innovation that offers an investment solution that can be structured as per your risk-return profile. Most of the wealth managers often come up with structured products for their high net worth (HNI) clients.

 

 

What are Structured Products?

Structured products are market-linked investment solutions that are hybrid in nature and are tailor-made to adapt to your unique needs such as risk-return objectives and liquidity requirements.

Basically, the investment strategy of a structured product is non-traditional in nature that combines two or more asset classes (conventional assets combined with derivative products) to meet your specific needs.

This integrated investment solution is highly customisable and can offer you efficient diversification to your investment portfolio.

The performance of structured products is often linked to the performance of the NIFTY index.

A typical structured product comprises bonds, equities and derivatives as an underlying asset class.

These products can either come with capital protection (full or partial return of principal) feature or without a capital protection feature.

The objective is to enhance your investment return by investing in market-linked instruments such as bonds and equities while balancing out the risk during a market downturn by investing in complementary instruments like derivatives.

 

What are the Components of Structured Products?

Structured products with debt securities/bonds and equity derivative exposures are quite popular in India.

Typically, the following are the components of structured products in India:

 

  • A bond: Capital protection is offered by the bond component as the issuer of the bond promises to return the principal. In the case of structured products without capital protection, you can expect additional income and stability.

 

  • Equities (one or more): Equities as underlying assets enhance the return potential of the investment. There would be a single equity instrument or basket of securities such as stocks along with ETFs that follow a popular index, foreign currencies, etc.

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  • A derivative product: The derivative component helps to balance out the overall risk. Options are commonly included as a derivative component in a structured product depending on the risk-tolerance level.

 

How does a Structured Product Work?

Though structured product majorly comprises traditional assets like bonds, it is strategized in a way to replace the usual returns of the bonds with non-traditional payoffs from other underlying assets, such as derivative products.

Let’s understand the working of a structured product with a simple example. Let’s assume, you invest Rs. 1,000 in a structured product with capital protection feature for five years.

That means you would receive the initial investment on maturity (on completion of a five years period) along with the return linked to the performance of an underlying asset over the period of five years. In this case, Rs.800 out of your Rs. 1,000 is invested in bonds or debt instruments whose value reaches up to Rs. 1,000 at the end of maturity, i.e. five years.

This is because the fund manager would invest in fixed coupon debentures to preserve your capital.

Now, the remaining Rs. 200 would be invested in equities and derivatives to generate the return and income.

The final return would depend on the performance of the particular index that the securities follow.

If the performance of the index is positive, say 25% over the last five years, then you would receive total return along with the amount invested (capital) on maturity.

In case, the performance of the index falls below the level at which investment was made, you would only receive the amount invested (capital) on maturity.

 

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What are the Key Features of Structured Products?

Structured products are issued by the private banking teams, wealth management firms and non-banking financial companies (NBFCs).

The top issuers in India include Edelweiss Capital Limited and Kotak Securities Ltd. including some of the foreign players like Merrill Lynch and Co. Inc and Citigroup Inc.

Following are the features of structured products –

  1. Asset composition: Structured products are hybrid investment products with a complex composition of assets.Basically, structured products consist of fixed income securities like bonds as a large component for capital preservation along with equities and derivative products as an underlying asset class for capital growth and income.

    The right composition of asset classes allows the structured products to maximise the probability of return with efficient management of risk.

  2. Investment amount: The ticket size for the investment into structured products may vary across issuers.In India, structured products are generally designed for high net worth investors (HNIs) starting with the minimum ticket size of Rs. 25 lakhs.

    Most of these investments are done through PMS (portfolio management services) and the guidelines of PMS are followed for the minimum cap on investment amount also.

  3. Risk-return profile: Risk-return profile of the structured product may vary totally depending on the way in which the particular product is structured.Being a highly customisable investment product, structured products can be modelled to suit the needs of conservative to highly aggressive investors.

    As the return of this product is linked to the performance of an index, the return generated generally ranges from CAGR (Compound annual growth rate) of 10% to 25% or even higher depending on the composition, market conditions and various other factors.

    Apart from the market risk, structured products are also subjected to the credit risk of the issuer as a bond being the major component.

  4. Tenure: Generally, structured products come with limited maturity which requires you as an investor to stay invested for the specific period.In India, the maturity of structured products ranges from 12 months to 36 months as these products are structured around the equity market.
  5. Professional management: Structured products are designed and managed professionally to meet the risk-return objectives of the investors.With professional management, structured products are effectively managed with various strategies to meet the return requirement.

    The structured product offers flexibility to meet the requirement even during the market downturn.

    The fees for the professional management of structured products may vary across issuers.

 

Structured Products Market in India

In India, structured products started garnering the limelight sometimes during 2007 and 2008.

Structured products are also referred to as market-linked debentures (MLDs).

According to CARE Ratings, the structured product segment or market-linked debentures in India will increase in size by the issuance of up to Rs. 17,000 Cr. in FY 2020 in comparison to Rs. 12,246 Cr in FY 2019.

You can take a look at the report issued by CARE ratings on this.

 

What are the Benefits of Investing in Structured Products?

Considering the market volatility in recent years, structured products are gaining popularity. You can benefit from the market upside by investing in structured products while limiting your risk during the economic downturn.

Mainly, the following are the benefits of investing in structured products

  1. Customised view: As structured products are highly customisable, it enables you as an investor to have a view on the market for two to three years specifically and then monetize the same.
  2. Capital protection: Most of the structured products come with capital protection features that make it a suitable choice for risk-averse investors. However, all types of investors can invest in structured products to benefit the diversification it offers.
  3. Higher return potential: Along with capital protection, structured products can generate attractive returns depending on the performance of the index the underlying asset is linked to.
  4. Risk return dynamics: Structure product boosts the portfolio return by investing in growth assets and manages risk efficiently by investing in derivatives.
  5. Hybrid exposure:Exposure to two or more asset classes and mix of traditional and non-traditional assets offer efficient diversification to your investment portfolio.
  6. Tax efficiency in Structured Products: Structured products are gazing the focus of high net worth investors (HNIs) and institutional investors due to its tax efficiency.When it comes to the tax treatment of structured products, long-term capital gains are taxed at 10% (for the investments held for more than 36 months) + surcharge for listed market linked debentures (MLDs).However, considering the complexity of the structured products, it is important to consult tax experts and seek advice before you invest in any structured product.

 

What are the Various Types of Structured Products

In India, structured products are mainly categorised in two types based on their benefits offerings and the way they are modelled.

  • Conservative structured products: Conservative structured products are the investment solutions that come with capital protection themes. The upside participation of these products in the risk asset returns is relatively lower.

Let’s take an example to understand this. Let’s assume you have invested in a conservative structured product with 140% upside participation in equity markets till maturity.

That means, on maturity if the market falls below the index level at which it was invested, you get back your principal.

Here, 140% upside participation means, if the index or benchmark increases 10%, then you would receive a 14% return on the equities/derivatives portion of your investment.

 

  • Aggressive structured products: Aggressive structured products are the investment solutions that come without capital protection features. The upside participation of these products in the risk asset returns is relatively higher.

Let’s take an example to understand this. Let’s assume you have invested in an aggressive structured product with 200% upside participation in equity markets till maturity.

That means, on maturity if the index fails to cross the level, you may lose out on a part of your capital also. But, there is potential for higher returns also depending on the performance of the index.

 

What are the Important Points to Keep in Mind While investing in Structured Products?

If you are considering investing in structured products for diversification or for higher returns along with the preservation of capital, here are a few important things for you to keep in mind.

  • Liquidity: First important point to keep in mind is the liquidity element in these investment solutions. In comparison to other short-term or medium-term investment options, structured products are not liquid in nature.As structured products pre-packaged investment solutions with limited maturity period, you are required to stay invested in the product till maturity to reap the benefits.

    However, some of the markets linked debentures that are listed on an exchange can provide you with intermittent liquidity.

 

  • Suitability to your risk appetite: Specifically when you are investing in a structured product with partial protection of capital or without capital protection features, you need to access your individual risk profile, as there are chances of losing in an aggressive structure.

 

  • Credit risk: Though many structured products come with capital protection themes, the complete return of capital on maturity may still depend on the credit risk of the debenture issuer.
    Hence, considering the credit profile of the issuer is also important while investing in a structured product.You need to also access the fixed income portion of the structured product to understand the ratings and to prefer the investments with higher ratings to avoid the credit risk.

 

Sometimes, a structured product (with capital protection) that comes with a cap on upside participation may limit your gains.

It is important to understand the complex nature of the structured product, the risk associated with each underlying asset needs to be understood before investing in this investment solution.

To sum up, the volatile market has created the need for a financial product that can sustain during all seasons of the market.

An investment solution like structured products that are highly customisable, tax-efficient and also offer attractive returns along with capital protection, are an apt choice for high net worth investors.

Professional design, management and diversification offered by the structured products manage the risk effectively along with enhancing the return.

Structured products can help you achieve your goals with its unique structure and investment strategy in every market situation.

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Debt Management – How to Manage Your Debts Effectively

Debt Management – How to Manage Your Debts Effectively

Financial responsibilities and obligations keep cropping up from time to time. Some are planned while others are unplanned. For most of your financial responsibilities you plan and save in advance and yet sometimes your savings might not prove sufficient. Moreover, if an uncertain expense comes up, you might need additional funding to meet the financial obligation that you face. This is where loans come into the picture.

 

 

What are loans?

Loans are a source of funds which you can avail from financial institutions like banks and non-banking financial companies. The loan allows you a lump sum fund at a specific rate of interest which is fixed by the lender. Thereafter, you can choose the repayment tenure over which you can repay the loan in small and affordable instalments.

Types of loans

Banks and financial institutions offer a range of loans which can be availed for different financial needs. Loans can be broadly divided into two categories –

types of loan

Secured loans are secured against an asset while unsecured loans are not. Unsecured loans are offered based on your financial status and secured loans are offered based on the value of the asset against which they are secured.

Some of the commonly available secured and unsecured loans include the following –

Type of loan Meaning
Personal loan Unsecured multipurpose loan for financing various personal or commercial financial needs
Vehicle loan Secured loan to buy a vehicle
Education loan Secured loan to fund higher education
Consumer loan Secured loan to finance the purchase of consumer durables
Home loan Secured loan to purchase a home or a plot of land
Business loan Secured or unsecured loan to meet the financial needs of a business

 

Moreover, loans can be categorized as good loans or bad loans. Bad loans are those which have a high interest rate and severely impact your credit score in case of defaults. Good loans, on the other hand, are those which build up a good credit score and also offer tax benefits.

Here’s how you can manage your debts effectively

 

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Important aspects of a loan

Here are some of the main components of a loan which you should know about –

  • Loan amount or principal

This is the amount of loan which you borrow from a lender.

  • EMI

EMI means Equated Monthly Instalment. This is the amount of money which is payable every month to repay the loan. The EMI consists of a part of the principal amount of the loan and the interest payable thereon. With each EMI paid the loan amount reduces.

  • Repayment cycle

The loan that you avail should be paid back within a specified duration. This duration, over which the loan is repaid, is called the repayment cycle of the loan. The lender specifies the minimum and the maximum repayment tenure that is available for the loan. You, as a borrower, then, can choose the repayment cycle as per your affordability.

  • Rate of interest

Rate of interest is the interest charged by the lender on the loan amount that you have availed. The interest is calculated on the outstanding balance of loan and the amount reduces after each EMI payment.

EMI calculation

The EMI of the loan is calculated taking into consideration the principal, the rate of interest and the repayment cycle of the loan. Here’s how these factors impact the EMI –

  • Principal – Higher the principal of the loan, higher would be the EMI
  • Rate of interest – Higher the rate of interest, higher would be the EMI
  • Repayment cycle – Longer the duration of the repayment cycle, lower would be the EMI

You can choose the principal and the repayment cycle but the rate of interest is determined by the lender. You can calculate the EMI before availing the loan to ensure that the EMIs are affordable and can be repaid easily.

Use our FREE EMI Calculators that will help you to calculate the EMI and it’s easy to understand.

Credit cards – a type of unsecured loans

Credit cards are quite popular among individuals for financial transactions. But did you know that credit cards are a type of personal loan?

Credit cards allow you to buy first and then pay later. There is a billing cycle and the entire transactions done within the cycle are payable within a due date. If you pay the entire outstanding amount within the due date, no interest is charged. However, if you don’t pay the amount or pay partially, interest is charged on the outstanding balance as well as on credit transactions done in the next billing cycle too.

Credit cards have high interest rates and can prove to be a bad loan if you don’t pay your bills on time. However, on the positive side, credit cards allow reward points and other benefits on your transactions. So, if you use a credit card wisely, it can prove to be a good tool.

Management of credit card debts

To ensure that credit cards give you the best benefits, you need to manage their usage. Let’s understand how –

The concept of MAD and revolving credit

Credit cards allow you a revolving credit facility wherein you can carry forward your outstanding credit card balance to the next subsequent months. For this revolving credit benefit, there is a limit of Minimum Amount Due (MAD). MAD signifies the minimum credit card due which you should pay in the current billing cycle to avail the revolving credit facility. Once the MAD is paid, the remaining credit card bill can be revolved to the next month.

Paying off MAD, though convenient, is not recommended. It is because the amount that you carry forward to the next cycle attracts interest. Since credit card interest rates are high, you tend to accumulate considerable interest expenses on the revolved credit. Moreover, if the credit is revolved, you also attract interest on the amount spent on the card in the next billing cycle from the first date of the cycle. This is also disadvantageous. Thus, you should not revolve your credit and pay the entire amount of your credit card debt within the due date.

To pay off your credit card debt, here are some tips which you can use –

  • Using your income and/or your savings
  • Converting the debt into affordable EMIs
  • Availing a personal loan
  • Using your investments

 

Personal loans – the most popular loans

Personal loans are quite popular among individuals as they are unsecured, easily available and allow funds for different uses. However, these loans have a high interest rate and affect the credit score adversely. So, here are the best practices and mistakes of availing a personal loan –

 

loan best practices

Read a complete guide on personal loan for salaried individual

 

Credit score – an important aspect

The credit score is a measure of your creditworthiness. It tells the lender how likely you are to repay a loan that you avail. The score ranges from 300 to 900 and the higher the score you have, the better would be the chances of getting a loan easily.

Your credit score is calculated by authorized credit bureaus like Equifax, CIBIL, etc. It is calculated taking into consideration the following factors –

  • Repayment history – if you have no repayment defaults, the score would be high
  • Credit mix – if you have a good mix of secured and unsecured loans, your score would be high
  • Credit utilisation – the lower the credit that you have availed, the higher would be your score
  • Credit history – if you have a good history of credit, your score would be high

 

How does loan impact your credit score?

The availability of loans solely depends on your credit score. The score tells the lender of your repayment risk and thus they consider the score before sanctioning the loan. Loans are usually allowed if you have a credit score of 600 or 650. For lower scores, loans are rejected. A score of 750-900 is the best score to get a loan easily.

Understand the loans available, how they work and how you can manage them to your advantage. Loans can prove to be a good source of funding your needs and if you manage them well you can avail and repay the loan easily. For a complete guide on management of debt, you can go through this financial planning course and get the complete knowledge on how to manage your liabilities to the best of your advantage.

Take care of your Finances with Koppr!

Take care of your Finances with Koppr!

Benefits of online trading of stocks

Benefits of online trading of stocks

The online platform has simplified the way we do transactions. From buying groceries to buying a car, everything can be bought online. Stocks are no different. You can buy and sell stocks through the online platform easily without any hassles. The online purchase and sale of stocks is facilitated through online trading. Let’s understand what online trading is all about and why it is beneficial –

 

What is online trading?

Online trading means buying and selling stock through an online portal. This online portal is offered by stockbrokers. Online trading of stocks is done in real-time and there is no paperwork involved. You can simply buy or sell the stock with the click of a button either on your laptop or on your Smartphone.

What are the benefits of online trading?

Online trading has become very popular nowadays because of the various benefits that it has. These benefits include the following –

1. Online trading is convenient

The best feature about online trading of stocks is that it is convenient. You don’t have to physically visit a stockbroker to buy or sell stocks. Some simple clicks of a button and you can trade in stocks as per your time and convenience. You just need an online account, an internet connection and a computer or a Smartphone and online trading would become simple and quick.

2. It costs less

Trading online saves on the costs involved in buying and selling stocks. When you trade online the commission payable to stockbrokers is low thereby helping you to save on the brokerage costs.

3. You can manage your investments easily

Your entire stock portfolio is at your fingertips on your online trading account. You can, therefore, assess and review your investments, buy or sell stocks, check the performance of your portfolio and then manage your investments as per your strategy with ease and convenience. This helps you to maximise your profits and reduce your losses.

4. You can control your stock portfolio

When you trade online, the record of your transactions is also available online. You can, therefore, have complete control over your portfolio. You can buy and sell any time that you want to as per your preference without having to depend on the broker and without any interference.

5. You can do instant transactions

Online transactions are done in real-time and as such, are instantaneous. The financial transactions are done instantly avoiding the risk of market fluctuations between the time that you initiate the buying or selling process until the time that the trade is carried out.

6. You get research reports for a better understanding of the stock market

When you have an online trading account, regular research reports are sent to you to give you an insight into the market. These reports are curated by experts and contain recommendations and analysis of different stocks based on their performance over the period. These reports, therefore, give you priceless knowledge about the nuances of the stock market and make you experienced in the art of online stock trading.

How can you trade online?

If you want to trade online, there is a process which you can follow. This process involves the following steps –

1. Learn the basics of the market

Plunging into stock trading without proper knowledge of the market is like appearing for an examination without any preparations. Stock trading is a risky activity and unless you have knowledge of the way the market works, you can incur considerable losses. So, understand the basics of the market before you start trading in the stock.

2. Choose the broker

Trading on the stock market is possible only through stockbrokers who are registered with SEBI (Securities Exchange Board of India). You cannot trade yourself and so you should find a registered broker who is registered on all exchanges through which you can trade in stock.

3. Open a demat account and a trading account

Just like you need a savings account to deposit and withdraw money from a bank, a demat account and a trading account are needed for stock trading. A demat account is like a locker which stores the stocks which you buy online in dematerialized format. The stocks held in a demat account can be traded online. A trading account, on the other hand, is an account through which you can trade in stocks. Thus, buying and selling of stocks would be done through a trading account while the purchased stock would be held in a demat account. Thus, the first step in online trading is to open an online demat and trading account.

4. Trade

After you have learnt the basics of the stock market, selected the broker and opened a demat and trading account, you are ready to trade. You can buy and sell stocks as per your choice by clicking on the ‘Buy’ and ‘Sell’ button on the broker’s platform.

5. Get the settlement of securities

After you have completed trading, there would be a settlement of securities bought or sold during your trading activity. If the securities have been bought, they would be transferred to your demat account and if you have sold securities, such securities would be transferred out of your demat account. The transfer of securities after the end of the trading day is called settlement.
Settlement of securities can be done in two ways which are as follows –

a. On spot settlement:

Under this settlement, the transfer of securities is done immediately. The time period for settlement would be on a T+2 basis which means that for trading done on a particular day, the settlement would be done within two days of such trading. So, if you trade on Monday, the settlement of the securities bought or sold would be done by Wednesday under on spot settlement.

b. Forward settlement

As the name suggests, the forward settlement means that settlement of securities is done at a later date. This later date can be on a T+5 basis, T + 7 basis and so on. So, for trading done on Monday if the forward settlement basis is T + 5, the settlement of securities would be done by Friday.

Documents required for online trading

To trade online you would have to open a demat account and a trading account with an online broker. This account can be opened only if you submit your documents to the broker. The documents which would be required to be submitted include the following –
a. PAN Card
b. Aadhaar Card
c. Address proof like utility bills, registered rent agreement, sale deed of the property, passport, Aadhaar card, Voter ID Card, driving license, etc.
d. Bank details which include your bank statement of the last 3-6 months and a cancelled cheque of your bank account through which you want to trade
e. The mobile number which should be linked to your Aadhaar card
f. Passport-sized photograph

Once the documents are submitted with the broker, they would be verified and if everything is found to be in order, your online demat and trading accounts would be opened allowing you to trade online.

Documents issued by the broker

When you trade with your broker, your broker is also required to issue certain documents to you. These documents include the following –

1. Contract note

A contract note is issued by your broker that shows your trading activities done on a particular day. The broker would issue a contract note within 24 hours of the completion of the trading activity and the contract note allows you to keep track of the trading that you have done.

2. Statement of funds

Your broker would also issue you a statement of funds showing the valuation of the stock held by you on a particular date. Statements of funds are sent either monthly or quarterly depending on the practice of the broker.

Things to remember before trading online

If you are a beginner in the stock trading domain, there are some things which you should remember before you start trading. These things are as follows –

A. Make a trading plan

Before you start trading, research the stocks in which you are interested and make a proper trading plan about the money that you would use to invest in stocks or the stocks which you intend to sell. Trading of stocks should be premeditated and should not be done on an impulse. Use research analyses, get recommendations from your broker, talk to your financial advisors and then plan your trading activity so that you can navigate the market fluctuations easily and without panic.

B. Use stock simulators before trading in reality

There are online stock simulators which allow you to practice trading before you actually start trading online. Practice your trading skills on simulators to understand the mistakes that you are making. Mistakes on simulators would cost nothing but if you end up making trading mistakes when you are actually trading, the consequences would be financially disastrous.

C. Invest what you save

While stock trading can promise good profit, it can result in substantial losses too. Stock trading is volatile and risky in nature and so you should only use your savings to invest and trade in stocks. Don’t make the mistake of borrowing for the purpose of investing and making a profit. You might fall in a debt trap. Risk only what you can afford losing so that even in a loss you don’t suffer financial consequences.

D. Be disciplined

As mentioned earlier, stock trading is volatile. Don’t let your emotions control your trading behaviour. Be disciplined when trading online. Ups and downs are a part of the game and don’t let them affect your trading. If your stocks suffer a loss, be patient for the market to correct itself. In case of a bullish market rein in your emotions and do not invest more than your savings.

The 3-in-one account for online stock trading

You now know that you need to open a demat account and a trading account to do online trading of stocks. Moreover, there is a need for bank savings account too which allows you to pay for your stock purchases and receive credit for the sale of stocks. Keeping these requirements in mind, a 3-in-one account has become quite popular in the trading world. The 3-in-one account combines a savings account, trading account and a demat account in one. It allows easy transfer of funds to and from your bank savings account to your trading account for your trading activities. Some common features of a 3-in-one account are as follows –

  1. Banks offer these 3-in-one accounts to their existing as well as new customers
  2. A brokerage is charged based on the transactions done using the account. The brokerage is either expressed as a percentage of the transaction value or it depends on the number and value of trading transactions that you do
  3. Many banks not only allow stock trading through their 3-in-one accounts but also trading of mutual funds, IPOs, derivatives, etc.
  4. Investment advise and recommendations are also offered by banks to their 3-in-one accountholders
  5. The brokerage charged for a 3-in-one account is usually higher than the brokerage charged by stockbrokers

How 3-in-one accounts work?

In a 3-in-one account, you get one trading account, one savings bank account and one demat account. When you do online stock trading and place an order to buy stock, the amount of money required to buy the stock gets debited from the bank savings account. This money is, then, used to purchase stock and the purchased stock gets added to your demat account. Alternatively, when you want to sell your stock, you place a sell order and sell your stocks through your trading account. This sale results in the withdrawal of the stock from your demat account and credit of the sale amount to your bank account. Thus, one single account provides you seamless facility of stock trading by handling your money, stocks and trading activities through the bank account, demat account and trading account respectively. Furthermore, since a 3-in-one account is offered by a bank, you can use the account as a regular bank account. You would be issued a debit card and a cheque book allowing you to deposit or withdraw money from the 3-in-one account as and when you want without any restrictions.

Benefits of 3-in-one accounts

The benefits of 3-in-one accounts have been stated in the way these accounts work and their inherent characteristics. However, here is a quick look at the benefits which 3-in-one accounts offer –

  1. Since 3-in-one accounts contain three separate accounts which are essential for online stock trading, they eliminate the need of opening a demat account, trading account and a bank account separately
  2. They give you a single platform to trade online without having to link your bank account to your trading and demat account separately
  3. You can trade easily and conveniently as the trading activity gets coordinated within the different accounts of the 3-in-one account in real-time
  4. Banks offering 3-in-one accounts also offer expert advice to their account holders so that they can get the maximum benefit of the stock market
  5. Regular account updates and statements are sent to account holders enabling them to monitor and assess their transactions
  6. Since 3-in-one accounts also work like a bank account, they allow account holders the flexibility of using the accounts as their bank accounts without having to open a new bank account
  7. 3-in-one accounts serve multipurpose needs and are, therefore, suitable for online traders

Online stock trading is an easy way to trade on the stock market. It also helps you and your employees maximize their wealth. So, learn and educate your employees about the different aspects and benefits of online trading so that you and your employees can gain the benefits of stock trading with minimal efforts.

How to budget your monthly spends in 2020

How to budget your monthly spends in 2020

A budget is a simple plan according to which you are going to spend your money. Mainly, a budget is based on your income, your expenditure and is a plan for saving in the near future. By budgeting, you will always know in advance about the money you have and the things you would be able to do with the money. By following a budget, you can keep your finances on track and can remain away from debts. A budget will help you in spending sensibly and thus enable you to save for your future.

Monthly Budgeting and its necessity

A monthly budget is a simple plan to determine the income in a month, expenses in a month and determine the savings if any. Monthly budgets can also be referred to as household budgets or personal budget which is a list of the expected income and expenses in the household. This will help you in planning on how your money would be spent or how the money would be saved. A monthly budget would help to set the guidelines on how much expenditure must be done on a particular category of household items. Whatever may be your monthly income, it is necessary to prepare a monthly budget to control your finances.

Why do you need a monthly budget? Let us find out the major reasons for the need of a monthly budget.

Control over your money

When you are preparing your own monthly budget, you will feel like your control over your money is increasing. When you have a clear idea about where your money is being and how much is being used, you can feel the authority and control over your finances.

Determination of areas where savings are feasible

By a monthly budget, you can easily find out those areas where you are making expenditure unnecessarily. It would direct you in using your money in only those areas where it is necessary and thus help you in finding out areas where money can be saved.

The idea about your future expenses

With a monthly budget, you can easily find out the different categories where you are spending your money and the amount of money spent. You can easily have a clear idea about your future expenses very easily.

Easy in finding out any malicious acts

When you check and maintain your budget regularly, if there have been any suspicious activities with your accounts such as any unknown deposit, withdrawal or expenditure; you would be able to determine it easily.

Reveals wastage

By creating a monthly budget, you would be able to focus on those areas which are mostly ignored or neglected by most people in daily lives.

Financial Goals

By making a budget, you are preparing an intentional choice on your categories of expenses and the number of expenses. You determine what will happen to your money and how it will be spent. This will help you in having a clear picture of your financial goals and you will put in your efforts to achieve your financial goals faster.

Reduces stress

Finances are one of the major reasons for creating stress in the lives of common people. When the expenses are in a planned manner and there is the scope of savings, the stress reduces and you feel empowered.

Financial Education

By the creation of a monthly budget, money can be considered as a tool that will help in achieving long-term financial goals in life.

How to create a monthly budget?

Let us check out the step-by-step procedure in preparation for a monthly budget.

Step#1: Make a budget in advance

It is quite essential that you prepare your monthly budget in advance before the month starts. This will help you in meeting the real purpose of monthly budget creation i.e. moving ahead with money and moving ahead in life.

Step#2: Set your financial goals

You should be clear about your financial goals and set them in advance before the creating of your monthly budget. Financial goals are of two categories i.e. immediate goals and Long term goals. Immediate goals are those that require the use of the money instantly for fulfilling the requirements whereas long term goals deal with the income and expense which span over a decade.

You will have to classify which goals are an urgent necessity and which are luxurious goals. Your current expenses are your immediate financial goals such as food; child care, cell phone, household items, car loans, utility bills, etc. are the urgent necessities and need to be fulfilled immediately. Long-term goals are your future plans like retirement savings, investments, etc. which do not need immediate action but will be one of the major objectives of the monthly budget plan.

Step#3: Determine your income

Now after you have determined your financial goals, you need to follow steps to achieve your financial goals. For this, you will have to determine all your sources of income. You can make a list of all your sources of income and add up the numbers to obtain the final income.

Step#4: Identify your expenses

In the next step, you need to identify your expenses and expenses mainly fall into the below-mentioned categories:

  • Fixed committed expenses that have a fixed amount every month such as a mortgage, rent, health insurance or vehicle insurance, etc.
  • Variable committed expenses which occur every month but the amount is different for different people.
  • Discretionary expenses are optional expenses like recreational and expenses related to the environment.

Step#5: Analyze your expenses

The most important step involved here is to ensure that the expenses you are making do not exceed your income. If your expenses are exceeding your income then, you will have to make certain adjustments to the budget. In such a scenario, you can just make some adjustments in the discretionary expenses and adjust your budget accordingly.

A monthly statement of your bank account would help you track your income and expenses and then track the necessary expenses accordingly.

Step#6: Revisiting the original budget and check progress

When you have created a monthly budget regularly for a certain duration like 2 months or 3 months, you can easily find out those areas which will need certain adjustments. Initially, you may not be aware of certain expenses but they have come up so, you can start including them into your monthly budget. You can make adjustments according to the requirements but you should ensure that the inflows and outflows must remain balanced.

Review of your budget within specific intervals is necessary as there are always certain changes in your income and expenses like a promotion or a layoff, car repairs, or some other expenses. Savings must be a part of your entire budgeting plan and it is wiser to create a separate contingency or emergency fund where you can save for certain unprecedented situations like loss of a job or medical issues, etc.

Step #7: Commitment towards the prepared budget

Creating a monthly budget is important and committing to that budget is even more important. If a monthly budget is made then your expenses should also be made according to that budget. You will have to remain realistic and make adjustments to the budget whenever necessary.

How to monitor monthly expenses and income?

It is necessary to monitor and track your monthly income and expenses. This will help you in getting a clear idea of where your money is going and where it should ideally go.

Check your account statements regularly

This is highly essential and will help you in determining your spending habits, where you are spending and how much you are spending. You should be very clear about the cash inflow and cash outflow in order to have control over your finances.

Categorization of your expenses

When your expenses are properly categorized, it will help you in having information about how much you are spending on which items. This would be helpful in making adjustments into your monthly budget if your expenses outgrow your income.

As said earlier, expenses are mainly of three major categories i.e. fixed expenses, Variable expenses, and Discretionary expenses. Fixed expenses are specific and would happen every month, variable expenses may vary from person to person and discretionary expenses are the ones that are adjustable.

Use of budgeting apps

There are different methods by which a budget can be created, tracked and even monitored. The most conventional method of budgeting is by the use of a notebook and pen. It is the simplest and least expensive method of budgeting. However, this method needed a lot of effort and time. So, there have been innovations in the field of budgeting and new, fast methods have been developed for budgeting i.e. budgeting apps.

There are numerous budgeting apps that will help you in creating a monthly budget and monitor your expenses. These apps will enable you to allocate a certain amount of income every month on the basis of what is being paid and what is being spent. You can log in to your purchases, input the time period and stick to your budget. These smart apps are an intelligent method to track, monitor your expenses and even create your monthly budget.

Maintaining other expense trackers

In case you are not much interested in the use of apps for tracking your expenses, then you can explore various other expense trackers that are available. Another alternate method to track expenses is through the use of spreadsheets. Spreadsheets also form an efficient expense tracking tool and can give a clear picture of your expenses and spending. They help in tracking, monitoring your monthly budget in a very organized manner. In addition to spreadsheets, there are various other budgeting and expense tracking tools available online which form an effective way of tracking expenses.

Make changes and adjustments

When you are tracking your expenses, then the next activity involved would be making changes and adjustments into the budget. You should be open to making changes and adjustments whenever needed in the budget as that is the most effective way of managing your finances. When you find the areas where you are spending more but those can be avoided, then you can make changes into your budget and spending habits.

So, by tracking and monitoring your expenses, income is really helpful and would bring a positive impact on your finances gradually.

Top 10 mobile apps and tools for monthly budgeting

Today, everyone is interested in planning their finances, tracking their expenses and saving money. The old conventional methods of maintaining records about your income and expenses, making notes on the unexpected expenses, etc. are time-consuming and cumbersome. The modern age is the age of technology and the tech world has noticed the need for technology in the field of budgeting and finance planning. So, there are various mobile apps and tools available which make monthly budgeting, tracking and monitoring expenses very easy.

Let us have a look at some of the popular mobile apps or tools which are widely used for monthly budgeting.

Mint

Mint is one of the best apps available for budgeting and expense tracking. Mint will help you in budgeting by categorization of the expenses in an automatic manner and create a picture of the expenses that have been done in real-time. You will be able to add up new categories according to your requirements, track your bills, split your transactions and even set the budgets in such a way that would provide an alert if the expenditure is exceeding the set limit. By the Mint app, you can also have checked and monitor your credit score free of cost.

Pocket Guard

Pocket Guard is a different type of budgeting app which helps in providing you with the exact amount which you have to spend. It will show the amount left out for spending after it has calculated the bills, other spending and the part which would be contributed for savings. You can have information on how much money is left in your pocket depending upon your choice of a week or a month.

Goodbudget

By the Goodbudget app, you will portion out a specific portion of your income for particular categories. If there is one account on the app, many members of a family can use it for having access to the monthly budget of the house. Here, you have to manually add up account balances, your debts, and cash amounts. This app is not synchronized with your bank account and all the data needs to be entered manually. You will also enter the amount which is to be assigned to various categories for spending.

Clarity Money

Clarity Money is a budgeting app by which you would be able to link your bank accounts from different banks. By Clarity Money, you will be able to track your expenses, organize your expenditures into various categories. You can also use this app for viewing your credit score and monitoring your credit score.

Personal Capital

Personal Capital is an investment tool that also has budgeting features. It helps in checking the savings account, credit card accounts and other details related to financial accounts. There are various categories present and you can customize these categories to find out the total expenditure in each category.

Financial Calculator

A financial calculator is a financial tool that helps in preparing a budget for the future. This app consists of a collection of calculators that can help you in many calculations along with budget creation and expense tracking. It consists of loan calculators, return-on-investment calculator, etc.

Google Sheets

You can consider Google Sheets’s method of budgeting as the old school method but they are reliable and as good as the other mobile apps used for budgeting. You can easily fill in the sheets with data like income, expenses and other necessary data. By using these data you can easily find out how much you have as income and how much to spend. Google sheets are like the office apps, simple and a very secure method for tracking expenses and budgeting.

Monefy

Monefy is a simple budget app that makes adding new data quick and easy. You can obtain various other features like an in-built calculator, dropbox integration, password protection, currency support, etc. You might take some time to learn about the app but once acquainted you find it quite easy to use.

My Budget Book

My Budget Book helps in detailed budget creation and expense tracking. It helps in collecting all basic details and can also set up the limit for each category. This app is customizable and you can export the file to HTML or CSV according to your requirements. It has a material design interface and you can obtain offline support for operating it whenever needed.

AndroMoney

AndroMoney is a very successful expense tracker and even offers cross-platform support in the case of web and iOS. The design for AndroMoney is very clean and the analytics are presented in a very logical manner. This app works absolutely well and has features like multiple accounts, support for various currencies, back-up to Excel, budgeting functions, etc.

Conclusion

Hence, budgeting and keeping a track of your expenses are highly essential. It gives you the confidence of having control over your finances. Creating a monthly budget will help you in having a clear picture of how much money has been coming in and how those funds would be used. Budgeting and tracking your expenses act as an effective tool in building a successful financial future and helps you get the most out of your hard-earned money.