Few matters in life are regarded, by many, as less relevant than planning for the distribution of estate, or in other words accumulated assets. More so in a country like India where, family legacy can be passed on from father to son and their sons without much tax incidence, and seldom does it require an eye of the expert for distribution among family members. But this scenario is changing fast with more and more families building wealth along with complex family bonds it becomes increasingly difficult for the wealthy to leave a legacy without conflict.

For many families wealth distribution or the estate dissolution takes place within the lifetime of the main owners. Though, same is not the case with every family, some very famous incidents have occurred in some of the wealthiest families clearly highlighting the issue of "Lack of proper Estate Planning" and how quickly a family dispute can spiral into a very public one.

Estate Life Cycle
Just as every asset has a lifecycle, every human being has a lifecycle and so does the estate. In some cases it may stretch to many generations, while in some, it may simply be the case of one generation building other enjoying, but regardless of how many generations the Estate lasts, its life-cycle plays an important role in decision of planning, distribution and continuation of estate.

Figure 2.1: Estate Life-Cycle

To understand the importance of various steps in the life-cycle we must relate those steps to the real life situations of a person involved into this venture. By understanding the reason behind each stage of estate life-cycle we can understand the factors at work in the minds of our clients and the fears, the decision affecting premonitions and why and how would they actually achieve a peaceful resolution, when it comes to their estate being passed to the next stage.

For example: A first generation entrepreneur, building a startup business is not actually thinking or worrying about preservation of that business venture. But only sometime later, when the business itself has moved from the very high growth rate to a moderate growth rate would he/she be actually concern on how to preserve it and then pass it on.

Whereas, a family business owner, who received a venture already established and only require to sustain it, will certainly be worried about the last two stages of:

• Preservation, and Distribution;

With more focus on the latter.

Why to Accumulate Assets?
The need for asset accumulation is the birthplace of the need for estate planning. Therefore, by understanding the reasons behind asset accumulation behavior we can pinpoint the real need of the planning. So, why assets are accumulated? Or, why anyone should accumulate assets throughout life? Given below are some of the common reasons:

A. Income security
One of major reasons and followed by almost everyone. We accumulate assets out of savings for rainy days in future, or for achievement of bigger goals or retirement whichever is your goal, generating additional source of income is an important goal of every family. Following life goals may be considered while targeting income security by individuals and families:

• Retirement
• Kids’ education
• Vacation
• House purchase etc.

These are some goals necessary for every family to prepare for, and some of the goals actually ensure additional income for the family; i.e. house purchase and retirement plans.

B. Better Lifestyle
This goal can be called a part of the income security efforts but due to its static nature we can look at it under a separate lens. Lifestyle expenses are usually met out of regular income of the family/ individual, but some of these expenses may require a bigger outlay, for example: purchase of a car, is one such goal, which may require some amount of savings to go into. Similarly an international vacation may be one of the major wish of the family requiring some amount of savings.

But, are these savings really assets? Perhaps not, the nature of assets divides the lifestyle asset from income generating assets. For Example:

• "Purchase of a car," which may be akin to building a short term asset, with limited utility of five to eight years.
• But "purchase of a vacation home," could be a long term asset, which may even be converted to generate additional income, and thus contribute to the income security of the family as well.

C. Financial Security for next generation
You may ask how it can be different from the objectives mentioned above. To a great extent it is not, but considering the involvement of next generation this objective is very different from the previous two, how? Take for example the following case:

• "Vijay and Kirti are parents to their two kids who are minor, school going children. Considering that it’ll take at least 7 years for one of them to become major and another 3 - 4 years in starting to become financially independent, the parents carry the responsibility to provide not only for their sustenance but also for their education and any medical needs they may face."
• Now consider purchase of a real estate property for income security purpose at Rs. 45 Lakh. Supposing the rent to price ratio is 5% p.a. family will increase their income by Rs. 2.25 Lakh p.a. “What happens if the kids are left to look after the property and themselves all by themselves?”
• The better solution for the family would have been to build sufficient financial assets, which are easier to handle, instead of major real assets, which will be difficult to handle or dispose off in stress scenario.

Therefore, different kinds of assets are required when we are building for the needs of the next generation. Insurance for example could be one.

D. For higher purpose/calling
With the advent of information technology and ease of execution, many of us are now able to follow our hobbies and areas of interest, which may not be directly related to income generation. Some of these areas even require substantial investment in the first place. Some of the hobbies:

• Photography
• Mountaineering
• Running a school
• Social welfare
• Pilgrimage
• Long distance travel etc.

The list can go on and on, but one thing may remain common and that is all of these most of the times are not related to the profession of the individual. Therefore, before launching themselves fulltime into such adventures, we must ensure that the financial needs do not pose a hurdle on the way. Also family and dependents remain provided for while we pursue our hobbies. Sufficient assets will ensure that for you and enable you to continue on your path unhindered.

So we can see the importance of investments and assets in our lives through these objectives, and also what happens when we remove them from the scene or from some family.

• Deserving dependents may have to start from scratch
• Dependents may have to cut down on lifestyle substantially
• Children’s financial future prospects may be jeopardized
• Loved ones may be forced to fend for themselves
• Business/Enterprise may be lost to creditors and distress sale
• That higher calling may have to wait for another day

How Assets are lost?

Asset transfer is one of the major reasons of loss of assets. 27% of the time assets are lost while in transfer to the next generation. Some of these assets take fairly long time to build , so one fact is clear, that by addressing:

1. The lack of discipline in asset use and wealth preservation
2. Wealth Plan &
3. Estate Transfer

We shall be able to reduce our chances of asset loss by 65% which is substantial, and moving further a good wealth plan itself will address the issue of health care and job loss, therefore completely filling up any gaps in asset preservation.

Estate transfer issues will not be completely taken care of by a wealth plan but certainly it forms the first building blocks of a good estate plan. The first ingredients in an estate plan are provided by a good wealth plan by organizing and bringing all assets and their characteristics at one place.

Why to Plan Estate Transfer?
Ensuing family feuds provide harsh enough reason for everyone with sufficient assets to embrace planning for its distribution or disposal in the unfortunate event of their death. But that may not be all. Here are five reasons why estate planning becomes important for everyone who owns substantial assets, or plans for the same:

1. Avoiding Family Disputes:
One of the most important reasons of all, this may be the reason for majority of asset holders out there, to keep family members and loved ones fighting over the leftover assets. Also this one reason has a huge impact on how the assets are to be distributed and there affects the planning directly or in other words is affected by the estate planning directly.

The first question a testator must answer to himself or the planner is that, whether there is a possibility of family expectations and what happens if those expectations are not met? Answering this one question may require much more bonding and clearer understanding of family interconnections and personalities but it also marks a turning point in the plan, when answered accurately.

Though, it will never be really accurate to answer of classify each one of the family members in such manner, but certainly all we need is to reduce the room for conflict, and the rest will be taken care of.

2. Survival of dependents:
Perhaps one of the greatest reasons why estate planning and small steps to ensure wealth transfer to right beneficiaries are just as important as building assets itself. As we have seen under the reasons for asset accumulation one of the reasons is to provide for the better lifestyle and more income security for the dependents, without proper planning transfer of the assets may be expensive and tedious process. Meaning much of the assets may be lost in the process or they may lose their value; for example: distress sale of business stake.

More than that, dependents may include those for whom it’ll be very difficult to survive in absence of external financial support, like children, handicapped relatives, old parents etc. For such dependents it may not even be possible to do rounds and take the effort of claiming most assets their benefactor may have left them, or worked hard to accumulate.

3. Survival and Continuation of Business/Enterprise:
Though this one argument may not be applicable to salaried individuals, but if they acquire stake in some business or enterprise this will also apply to them. Usually, many people including – employees, customers, creditors depend on the enterprise for their financial survival and growth, and thus, every business owner has this important responsibility to prepare for contingencies and pass on the ownership in a manner that ensures smooth transition of business to new owners and its continuation.

A proper estate plan will ensure the baton of ownership is passed unhindered and without much damage to the confidence of the three stakeholders in the enterprise as discussed above.

4. Continuation of Causes/Charities etc.:
With the financial security comes the freedom of will, and with freedom of will comes the desire to act on those higher callings in life, assisting others achieve greatness, promoting social welfare or fighting for a neglected yet important cause. People with substantial financial assets and good financial security are the ones often greatly active in their social lives and helping others overcome their difficulties. If you are one of such people, you would not want your cause to be forgotten after your demise, lack of estate planning might just do that. Therefore, once such causes are undertaken, ensuring their preservation also becomes equally important.

A good planning and forethought will not only allow your all important cause to continue, but may also bring many other likeminded activists along, expanding it multifold.

5. Preserve Family Legacy:
Family legacy is one of the factors which could be really rare and so precious. But like other causes and assets it’ll not protect itself from being lost, overtaken or forgotten by the generations unless it is allowed, through proper planning and guidance to grow and continue to benefit those it intends to, that may sometimes involve general public as well.

In modern times such concerns are taken up by business families, who have built substantial fortunes for themselves and need to forward the values and the enterprise to the next generation, especially in our country where most great businesses are family owned. The continuation of business is not the only challenge faced by businesses, but the continuation of the whole vision of the business which gives impetus to that effort. This will not just required careful planning for succession but also matching of family objectives with that of the enterprise, and further planning to continue the same for many generations to come.

6. Taxation & Transfer Costs:
Cost of transfer of estate is another major factor one should look out for while transferring the estate. Under Indian tax laws gifts and estate transfer to own children may attract least taxation but when it has to be done to minors and daughter-in-laws one should be careful of clubbing provisions. Other than that timely and proper planning may avoid distress sale of assets which diminishes their value.

Therefore, depending on the magnitude of assets a person has, the priority might change from preservation to growth, to transfer, and within transfer whether to simply plan for changing hands or for a foundation, can be a matter of concern for various classes of individuals and families with ownership of small or large estates. But one thing remains common among all, that the estate must serve the purpose of the family and the next generations to come after all that is why it was built in the first place.

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The tax-saving season is coming to an end. For the investors, there is a host of tax- saving products competing with one another to get your attention. However, choosing the right product is not easy in the race against time.

Perhaps, it is just the right time to draw your attention to one such tax-saving product vying for your attention. Known as the Equity Linked Savings Scheme (ELSS) from mutual funds, it is one product that deserves more attention than any other tax-saving product. As an investor, it would be interesting to know more about ELSS and understand how it scores above other tax-savings schemes on offer...

Tax Savings:
Making the most of the tax saving options available to you is very obvious. Section 80C of the Income Tax Act, is a major section where most of the tax savings can be done by an investor. Investments made under section 80C are deductible from the income of the person while calculating tax. Thus, a person can save up to Rs.30,900/- in tax by making full use of 80C, depending upon his/her tax slab. The good news is that there are a host of products that qualify for ‘tax-deductible' savings Section 80C, which includes...

• Public Provident Fund (PPF)
• Equity Linked Saving Schemes (ELSS)
• National Saving Certificates (NSC)
• Fixed Deposits (5 year period)
• Provident Fund (PF)
• Kisan Vikas Patra (KVP)
• Life Insurance Premiums
• Pension Funds
• Housing Loan (Principal) Repayments
• Infrastructure Bonds

Thanks to the large number of products available under section 80C, you need to understand your options better before your commit your money to any particular option. With these multiple options, for an investor, it makes sense to make the most of this section by not only saving tax but also investing for the better returns. However, quite often this is not the case. The investment decision is often driven by “tax-saving” objective, ignorant of investing side of it.

About Equity Linked Savings Scheme:
An ELSS (Equity Linked Savings Scheme) is a mutual fund scheme investing in equity and equity-related securities. ELSS is similar to a diversified equity fund in terms of their portfolio except the fact that they they have a 3-Year lock-in- period and are eligible for tax-deduction under 80C up to Rs.100,000/- (FY 2010-11).

ELSS scores upon other traditional tax saving investments for the following factors:

• Minimum Lock-in Period: The lock-in Period is of 3 years only which is the least among all the investment products under 80C. After this period you are free to withdraw your entire investment or continue holding it as a long term investment.
• Attractive Returns Potential: There is a strong potential for higher returns as returns are not fixed but market dependent with investments in equity & equity related securities. Equities have been proven to give attractive returns in the long-term over any other asset class.
• Additional Tax Benefits: ELSS enjoys other tax advantages applicable to mutual funds. There is no tax on the dividends declared and also no taxation on long-term capital gains. This makes all the income and appreciation from ELSS tax-free for the investor.
• Choice of Product: There is a lot of choice in terms of selecting from an ELSS scheme being offered by many AMCs. There is choice also for selecting between scheme option of Growth / Dividend Payout or Dividend Reinvestment.
• Convenience: Mutual funds offer huge convenience / flexibility in investing. One can invest through lump-sum / SIP or make a Switch or STP from an existing mutual fund scheme. Further, since mutual funds are now also traded on stock exchange, you can directly buy ELSS online, sitting at the comfort of your home.

The following is the brief relative performance comparison of some of the major tax-saving products.

ELSS, thus, scores important points over many other tax-saving products. However, one should also understand that the returns are not guaranteed before investing.

Case for Equity Investing through Mutual Funds:
Most of products under 80C are on the debt side like NSC, Bank Deposits, PPF, etc. These products offer assured rates of return. However when you adjust these returns for taxation and inflation, returns would be negative. Thus with negative “real returns” on your investments, you are really not saving but dis-saving in actual terms. With higher inflation rates in recent times, the investment in these products must be made only after careful understanding that you may be actually eroding your wealth. As investors, we should always aim for positive real returns (higher than inflation) after tax. It is only then that we will truly invest for a better future.

One of the most important asset class to beat inflation in long term is equities. It is true that equity returns can not be guaranteed but are market dependent and hence riskier than the dept products. However, once the investment duration is prolonged and the right way of investing is adopted, you can reduce risk to a certain extent without compromising on returns potential. One way of smartly doing so is by investing in equity mutual funds rather than directly investing in equities. Mutual funds, is an ideal investment vehicle for any investor to invest into equities as it offers the important benefits of diversification and professional investment management at least costs. Further still, the Systematic Investment Plan or an SIP in a equity mutual funds reduces the risks and offers a convenient way to invest small amounts of money at regular intervals in any scheme, including ELSS. Thus, equity mutual fund schemes would help generate inflation-beating returns in long run while keeping risks under control.

The advantages of ELSS as an equity mutual fund scheme plus tax benefits of 80C plus its scoring points over other tax saving products, makes it a formidable product to invest and gain maximum out of 80C. The ultimate decision to invest should however be made as per one's own risk appetite and after understanding all the risks & benefits offered by the investment products. After all, you are investing not just for tax savings but something more...

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Investing in simple but not easy. We are often in a dilemma as to what approach to adopt for investing. An average investor on the street is likely to be direction-less about investing and would not likely have any clue as to the purpose or goal of investing. What is needed is a simple approach which we can easily understand & follow while managing our investments. While there can be many different approaches that can be adopted given the different situations or purposes of investment, we present one approach that can stand true for most investors.

THE INVESTMENT APPROACH :

An investment approach has to be relevant and reliable for investors at different times and different financial conditions. It should take into consideration the financial objectives of an average investor into consideration. The attached image represents one such approach to investing that can be followed in our investments. The following are the key elements that form a part of this approach.

LONG TERM GOALS :

The long term goals or funding needs of an investor should be at the heart of any investment planning. There are quite a few long term goals which we see in our lives. Goals like education and marriage for children, purchase of home and car and retirement for self and spouse are the goals that must be in focus. Depending on the family priorities, other goals can also be taken into consideration.

As a first step, we should identify our long term goals by quantifying amount needed, time horizon and savings potential. Accordingly, we should invest in assets that give us the best possible wealth creation opportunity in long-term so that we can achieve our goals.

RISK APPETITE:

After accounting for your long term goals, the next element is identifying your risk appetite or your ability to take risks in investments. For eg., the risk appetite for a 25 year old and a retired person differs largely. Note that we are talking about risk appetite after planning for long term goals because one, we cannot afford to compromise on our life goals and secondly, the risk from equities reduces and returns are more predicable in long term than short term. A person's risk appetite can be identified, for the sake of simplicity, as aggressive or moderate or conservative. This would take into account your financial ability and your mental appetite to take risks and bear losses. This input will be important for identifying asset classes for ongoing /regular investments which are not directly linked to any goals in life.

REGULAR INVESTMENTS :

Ongoing or regular investments are generally of short to medium term time horizon and not linked to any life goals. There are three things you should keep in mind for these investments which will continue during your entire life...

1. Liquidity: At least some part of your investments must be liquid enough so that when you need any money, you are not helpless. Financial planners often talk of an Emergency Fund to be kept which can be equivalent of 3 to 6 months of your household expenses to tide over any emergency situation. Further, for investment purposes, it is recommended that money should be put in avenues that are liquid in nature rather than physical like property and precious metals. This will provide more safety, transparency and control while saving storage and maintenance costs.

2. Asset Mix: While making regular investments you should consider your risk appetite and then identify a proper mix of different asset classes and also the underlying products. You may also design your asset and product mix keeping your tax planing in mind or as per your other financial objectives. Having a proper coverage of your assets is very important before we actually talk about arriving at an asset mix. Most of the time, we ignore to consider physical investments and investments into debt products like PPF, Post office small savings, etc. while arriving at our asset mix. An asset mix has to consider all such assets to be meaningful for you. improvement in your investment plans.

CONCLUSION :

Planning for long-term goals should be at the starting point of our investments and also at the heart of it till we do not exhaust all our long-term goals, including retirement and inheritance. Only after planning for those responsibilities can we look forward to making investments as per our risk appetite and for meeting other general financial objectives. Our investment approach should be centered around these pillars to ensure successful investment outcomes. To begin with, let us first try and remember the image of the investment approach we just read about.

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For the first time ever, June 21st was celebrated as the International Day of Yoga across the world led by India. Yoga is perhaps the only discipline that focus on a person's well-being holistically, including physical, mental and spiritual aspects. This brings us to another aspect of our lives – our financial well-being for which we are constantly strive for and are more often than not, in stress. We have often talked of how doing a financial planning is a must for financial well-being. Just to refresh, financial planning, in brief, is a process of identify your financial objectives , then preparing and following a financial plan to achieve those objectives. Drawing a parallel between these two distinct yet homogeneous ideas promoting holistic well-being cannot be missed. In this article, we take a look at similar characteristics between the two...

1] The idea of Unity: Our PM introduced yoga as an unity of body and mind, thought and action and as the journey discovery of self more than being just an exercise in the UN General Assembly speech. Financial planning too is a journey of discovering your own financial self, understanding your risk appetite, your net worth, your income, expenses and your financial goals in life. It is also about creating a unity and synergy between your income with your expenses, your wealth with your financial goals and your present with your desired financial future.

2] Being Universal: Yoga is truly universal in nature and it holds the same promise for every individual irrespective of age, religion, occupation, ethnicity and even health. Financial planning too is very universal in nature and can be effectively carried on for every individual irrespective of gender, wealth, occupation or the level of financial awareness. Depending on one's situation, the financial plan can be customized to focus more on specific areas /aspects as one may feel need for. The areas we are talking here cover all wealth and financial aspects of an individual like cash-flow management, investments, insurance, taxation, and estate planning.

3] Need for Patience & Discipline: To realise the true benefits of yoga and of financial planning, one has to be patient and exercise discipline in pursuing them for a long period of time. Whether it be achieving a healthy mind and body or your financial goals in life, the importance of discipline and patience for continuous and proper practice can never be less emphasised. In financial planning you have to take efforts to ensure that you are saving, spending and executing the plans continuously as planned while regularly reviewing and making amendments to your plan.

4] There is No Contest: Yoga does not specify any targets for you and you do not have to face any competition with anyone else. Financial planning is also just for you, customised and as per your own assessment of your needs. When you plan your finances, you are looking are your own risks, financial goals and cash-flows. You do not need to think about others and what their plans are. The financial plan is for you and only you will be able to judge the progress and enjoy the benefits of achieving those goals. Your achievements are also relative in nature depending on your own strengths and weaknesses.

5] Focus on Form & Process: Yoga stresses a lot on proper form, posture, breathing and the process of carrying out any aasanas. Only when we carry out the aasanas in its' proper process can we unlock the true benefits from t h e m . F i n a n c i a l planning too has focus on following the process and executing the action plan, properly and on time, continuously. A proper financial plan cannot be made unless the process is followed sincerely and this includes defining the scope of the planning, understanding the expectations, disclosing all relevant facts and assessing cash flows and financial goals properly to being with. We cannot expect our financial objectives to be met unless we adopt the the process and make regular reviews. A financial plan is not a product but a process to organise our finances just like yoga is about organising our own selves.

6] Going Beyond Body: Yoga is beyond just body and exercise. Financial planning too has a bigger picture and it deals with your financial behaviour, habits, sensitivity and awareness. Adopting and following financial planning in our lives can potentially also alter our way of looking at financial decisions and situations.

An awareness of our financial strengths, weaknesses and our goals in lives can dramatically change our approach to savings and spending. With increased financial awareness, we can see a change in our comfort level and approach to different asset classes and financial products. Over a period of time, we will also begin to see ourselves as more disciplined, steady and logical when in comes to money.

7] It's A Journey: Both yoga and financial planning are not to be seen as one time tasks or surgeries where advantages can be visible overnight. They are to be seen as journey towards self discovery, unity and ultimately well-being. Financial planning is a discipline or organise and plan your finances so that you are are aware and in control of your future. Thus, as a continuous process, it will slowly but steadily lead to much better and improved financial well-being over time. And there is no end to this.

Conclusion: The idea of finding similarities between yoga and financial planning is to evoke the sense of importance and respect for the latter, which we often neglect in our lives. Perhaps by highlighting the similarities we would be motivated to understand, appreciate and finally adopt a financial planning in our lives. It can potentially be very rewarding just like the rewards of yoga which we are talking about today. Nothing can however be more beneficial than adopting both yoga and financial planning in our lives. That way, even the missed part of financial well-being by yoga would be aptly taken care of. By adopting both in our lives, we would embark on a more fulfilling and complete journey of self discovery and well-being.

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